When the U.S. equities market crashes, most foreign stocks do as well. But when it comes to capital appreciation, the correlation ends. Domestic Chinese stocks experienced a small resurgence lately, but they are still well down from their peak in 2007. China is still very much an emerging market, but several other emerging markets are doing much better. These economies are experiencing growth in domestic demand and are also selling a lot of product to their neighbors, China and Japan.
Thailand (the second largest economy in Southeast Asia) is actually an emerging market that is a better play than China itself. And, of course, you have lots of options as an investor if considering having some exposure to the region.
The iShares MSCI Thailand Capped Invstbl Mkt exchange-traded fund (ETF), symbol THD, has been on a tear lately, representing the broader stock market in Thailand. This ETF has about a billion dollars in net assets and is up approximately 38% year-to-date. Way better than China.
Things are really happening in Thailand. According to Thomson Reuters, this emerging market experienced 2012 fourth-quarter GDP growth of 3.6%, with strong domestic demand and an 18.2% increase in exports. Private consumption grew 12.2% during the quarter and both the government and central bank expect a solid increase in global trade this year.
Another emerging market experiencing a big increase in both domestic demand and exports to China is the Philippines. Pull up the iShares MSCI Philippines Invstbl Mkt Idx ETF, symbol EPHE, and you’ll see a huge spike over the last year. According to Bloomberg, that country’s 2012 fourth-quarter GDP grew 6.8% on government spending, domestic consumption, and investment. Standard & Poor’s recently raised the country’s sovereign debt rating outlook to positive. According to Bloomberg, the Philippines is experiencing a hotel building boom, and Google Inc. (NASDAQ/GOOG) opened an office in this emerging market in January to try to cash in on the growth.
There definitely is a lot of change happening in the global economy, and the action is moving to Asia. China’s economic statistics seem pretty suspect these days and we know from all the frauds in U.S.-listed Chinese stocks that many companies have no problem cooking the books. But for those investors comfortable taking on positions in emerging markets, countries like Thailand and the Philippines are right now better plays on Asia and China itself.
Emerging market investing isn’t for everyone and you have to do your own homework. (See “The Great Big Stock Market Disconnect.”) I’m still mostly a fan of investors keeping things domestic, but these two Asian countries are definitely experiencing rapid, positive change.
Near-term action in the U.S. stock market is still poised for more strength. First-quarter earnings season is quickly approaching and it is the next big catalyst.