Are Southeast Asia ETFs Better Bets Than China?

Though China ETFs have rallied this year, renewed trade tensions have once again put the country’s investing scene on the backburner. The month started with the incendiary move by President Donald Trump regarding his levy of tariffs on Chinese goods.

The Trump administration raised the current 10% tariff on $200 billion worth of Chinese goods to 25% on May 10. The decision, however, has been retaliated by China (read: China's Retaliation Puts These ETFs and Stocks in Focus).

Why China is Vulnerable

Though trade talks are not dead yet and President Trump and China’s president Xi Jingpin may resume talks in the upcoming G-20 meet, Trump said that he will impose a 25% tax on an extra $325 billion of Chinese goods “shortly” (read: Least-Hurt Tech ETFs as China Hits Back).

We believe along with several other analysts that there are strong signals from companies of “relocating supply chains and manufacturing out of China and into some of the Southeast Asian countries.” About 200 American companies are looking to shift their manufacturing base from China to India post general elections, per a top US-based advocacy group in an interview with PTI.

China’s economic growth has also been decelerating. Of late, the economy has seen a retail sales slump and decline in industrial output growth. Fixed-asset investment and private-sector fixed-asset investment growth have also been disappointing (read: China Disappoints With Sluggish Numbers: 5 ETFs in Focus).

Given escalating trade tensions with China, American firms may be lured to “buy semiconductor parts from Malaysia and data-storage units from Thailand; or consider moving their factories to Vietnam; or start investing more in Indonesia.”

India, Thailand and Indonesia, being the Generalized System of Preferences (GSP) countries, tend to benefit from the U.S.-China trade war, per a source. The GSP act promotes economic development by removing duties on thousands of products when imported from one of 120 designated beneficiary countries and territories.

This is why Aberdeen Standard Investments probably sees opportunities in Southeast Asia as the trade war between the U.S. and China wages on. Aberdeen has strengthened their positions on Singapore, Indonesia and India (read: Slowing Indonesian Economy Puts These ETFs in Focus).

ETFs in Focus

If you are a believer of this investment thesis, you can try to have a close look on various country ETFs like iShares MSCI Singapore Capped ETF (V:EWS) , iShares MSCI Indonesia ETF EIDO and iShares India 50 ETF (JK:INDY) (read: ETFs to Buy/Avoid on Higher Oil Prices).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>