The term ASEAN is an acronym for the Association of Southeast Asian Nations, which is a geopolitical and economic organization consisting of Indonesia, Singapore, Thailand, Malaysia, Brunei, Burma (Myanmar), Vietnam, Cambodia, Laos and the Philippines. Investors are interested in this region thanks to its $1.8 trillion nominal GDP and strong growth rates.
History of ASEAN
ASEAN was formed on August 8, 1967 by Indonesia, Malaysia, Singapore, Thailand and the Philippines due to the group's common fear of communism, distrust of external powers, and desire for economic development and nation building. In the 1990s, the ASEAN focused largely on free trade agreements before shifting to nuclear arms and environmental concerns.
The Treaty of Amity and Cooperation in Southeast Asia was centered on the ideals of non-interference in internal or foreign affairs, peaceful dispute settlements, and economic cooperation between members. Combined, these ideals were termed the "ASEAN Way" and they have since been a source of regional identity for the member nations.
Role of ASEAN Today
ASEAN regularly holds summits roughly ever three years to resolve regional issues and promote relations with countries outside of the block. In particular, the ASEAN Plus Three meeting was expanded to include China, Japan and South Korea, while the ASEAN-CER include talks with leaders from Australia and New Zealand, given their proximity.
International investors better know the term ASEAN for its use simply to represent the ten member countries as prime investment destinations. While the region only covers about 4.5 million kilometers, it houses approximately 600 million people that constitute a very significant 8.8% of the world's population, with approximately $1.8 trillion in nominal GDP.
Investing in the ASEAN Region
International investors have a number of different options when investing in the ten different ASEAN countries, including both exchange-traded funds (ETFs) and American Depository Receipts (ADRs). Of course, investors should also consider all of the risks associated with these securities before investing any capital in ASEAN opportunities.
Investing in ASEAN ETFs
The easiest investment option is the Global X FTSE ASEAN 40 ETF (ASEA), which is designed to capture the future growth in the region by providing access to the 40 largest and most liquid companies among the original five ASEAN members. With an expense ratio of 0.65%, the fund represents a reasonable option for investors simply looking for one-stop access.
Of course, there are a couple risks to consider. For instance, the financial sector accounts for approximately 40% of the ETF's market capitalization, which means that an extended downturn in that sector could dramatically influence the price. Meanwhile, the distribution between countries is uneven with Singapore accounting for nearly 40% of the total market capitalization.
Investing in ASEAN Equities
Investors looking to take a more hands-on approach can purchase equities either on foreign exchanges or using ADRs that trade on U.S. stock exchanges. As a starting point, investors interested in ASEAN opportunities may want to consider the 40 stocks listed in the aforementioned ETF's prospectus, given their size and liquidity.
Some popular ADRs from this list include:
- DBS Group Holdings Ltd. (DBSDY)
- Singapore Telecommunications (SGAPY)
- United Overseas Bank Ltd. (UOVEY)
Key Points to Remember
- The term ASEAN is an acronym for the Association of Southeast Asian Nations, which is a geopolitical and economic organization consisting of ten countries in the region.
- ASEAN has been instrumental in improving relations between Southeast Asian countries, as well as relationships with other nearby countries.
- Investors looking to invest in the ASEAN region have a number of opportunities, ranging from ETFs to ADRs, or even equities traded on foreign exchanges.