10 ETFs to Profit from Asia in 2012

How did your portfolio do in 2011? The answer greatly depends on where you invested your money and how able you were to withstand some wild volatility.

Today I'm going to share with you 10 Exchange-Traded Fund (ETF) ideas to help your 2012 performance turn out better than the previous year's! But first, let's take a look back at the year that was, and how we can profit from what we've learned from it.

Big Events, But
No Big Progress

The effects of the Japanese tsunami and Fukushima nuclear disaster in the first part of the year were felt beyond just Japan. After that, investors wrestled with the first-ever downgrade on U.S. sovereign debt. The Dow Jones Industrial Average dropped 17% from its late-April peak to its early-October low.

The good news was the Dow rose almost 15% since then — even in spite of the still-pending outcome of the European debt crisis.

Picking individual stocks, even among big blue-chip names, was a hit or miss. Among Dow stocks, the three top performers for the year were McDonald's, IBM and Pfizer, which were up 30%, 25% and 23%, respectively. The worst performers were Bank of America (-58%), Alcoa (-43%), and Hewlett-Packard (-38%).

In spite of those major road bumps, the stock market, as defined by the S&P 500, was even for the year. To be precise, the S&P 500 did gain four one-hundredths of a point — it started the year at 1,257.60 and ended at 1,257.64.

That percentage change of 0.0032% is the smallest annual change, positive or negative, in the history of the stock market. Ever.

The Biggest Waves
Taking Place Overseas

Things weren't nearly as dull across the Pacific Ocean, as many Asian stock markets had a very difficult 2011. The broadest measure of Asian stock markets is the MSCI Asia Pacific Index, which fell 23.8%. Ouch.

The results were quite varied by country, though. The worst-performing markets were India (down 24.6%), China (down 22%), and Hong Kong (down 20%).

Taiwan lost 18%, the Japanese Nikkei 225 Stock Average lost 17%, Singapore was down 15%, and South Korea lost 11% in 2011.

Asia's Top-Performing Market
in 2011 May Surprise You

Not everything in Asia was negative, though. Five Asian benchmark indexes — Indonesia's Jakarta Composite Index (+4%), the Philippine Stock Exchange Index (+7%), Thailand SET (+2%), the FTSE Bursa Malaysia KLCI Index (+3%), and Mongolia's MSE Top 20 Index (+47%) — had positive returns for the year.

Mongolia? Yup, the Mongolian stock exchange was the No. 1 market in Asia with a 47% return last year.

Not a lot of U.S. investors had money in the Mongolian stock market. So, investing in Asia — at least, via the broader indices — was largely an unrewarding proposition in 2011.

But consider this: After a tough 2011, the MSCI Asia Pacific Index is now trading for an average of 12.7 times estimated earnings.

That is surprisingly identical to the same 12.7 times earnings that the S&P 500 is selling for. That's right: Asian stocks and U.S. stocks are selling for roughly the same valuations.

U.S. vs. Asia: Which Should Win
Your Investment Dollars in 2012?

So which region — the U.S. or Asia — do YOU think offers a better investment value?

Is it the U.S., which was essentially unchanged in 2011 ... or Asian markets, which are 20% cheaper today than they were a year ago?

The U.S., which is teetering on another recession ... or Asia, where most economies are still growing by 6%, 8% or more?

In my view, there is no question that Asia offers a much better risk-reward proposition as well as better growth prospects.

Asian economies are growing at a much faster pace, most have huge trade surpluses and gigantic hoards of cash reserves, and they aren't burdened with mountains of debt like the U.S. and Europe.

Plain and simple — Asia is a better investment bet.

If you have not done so yet, THIS is the time to jump on the Asian bandwagon. If you've been a reader of this column for any length of time, you know that I favor individual stocks over mutual funds and ETFs. But if you want to get some fast, easy exposure to Asia, here are some ETFs for you to consider.

The Vanguard Pacific ETF (VPL) is an exchange-traded share class that duplicates the performance of the MSCI Pacific Index. The index contains the common stocks of companies located in Japan, Australia, Hong Kong, Singapore and New Zealand. The countries with the largest capitalization weightings in the index are Japan and Australia.

The iShares S&P Asia 50 Index Fund (AIA) seeks investment results corresponding to the Standard & Poor's Asia 50 Index.

If you are looking for China-focused ETFs, you might want to check out the following.

iShares FTSE/Xinhua China 25 Index (FXI) seeks to track the performance of the FTSE/Xinhua China 25 index. This index consists of the 25 largest Chinese companies listed on the Hong Kong Stock Exchange.

PowerShares Golden Dragon Halter USX China (PGJ) seeks results that correspond to the returns of the Halter USX China index. This index consists of 103 Chinese companies whose common stock is publicly traded in the United States. The index uses a formula that prevents the largest market-cap companies from becoming too large a component of the index.

SPDR S&P China (GXC) seeks to replicate the total return performance of the S&P/Citigroup BMI China index. This index consists of the largest 342 companies that are publicly traded and domiciled in China.

There are more sector-focused China ETFs, too.

  • Claymore China Technology (CQQQ) tracks the GICS Information Technology Index.
  • The Global X China Consumer (CHIQ) tracks the AlphaShares China Consumer Index.
  • EG Shares China Infrastructure Index Fund (CHXX) tracks the AlphaShares China Infrastructure Index.
  • The Global X China Industrial ETF (CHII) tracks the performance of the S-BOX China Industrials Index.
  • Global X China Technology (QQQC) tracks the Nasdaq-OMX China Technology Index.

I believe, however, that you'll do much better with a basket of carefully selected individual Asian stocks than broad-based ETFs.

Investing in Asian stocks is easy. In fact, there are more than 100 Chinese stocks listed in the United States on the NYSE and Nasdaq. Yup ... more than 100 Chinese stocks are as easy and accessible to buy/sell as General Electric or Boeing.

That is in addition to many stocks from Japan, India, South Korea, Singapore, and more.

However you choose ... just get on board because the lucrative Asia train is about to leave the station.

Best wishes,

Tony


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Posted 01-13-2012 11:18 AM by Tony Sagami
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