An ETF to diversify away from the China-Taiwan concentration

IInvestors should explore Asia’s biggest opportunity for emerging market diversification through an innovative emerging market exchange-traded fund strategy focused on Asian Growth Cubs, Asia’s biggest emerging market opportunity this decade. located in Southeast Asia.

During the recent webcast, Why emerging economies are poised for some of today’s best opportunitiesMaurits Pot, founder and CIO of Dawn Global Management, pointed out that the story of emerging market investing is still very much alive, with foreign inflows of more than $450 billion since January 2020, but that around 90 % of this money was concentrated on Brazil, Russia, India, China, Taiwan and South Korea.

Pot also noted that emerging markets have been gaining attention even as major news headlines paint a bearish picture. For example, the conflict in Ukraine has caused some investors to question the new world order and global alliances.

China, in particular, has suffered from a range of issues, including regulatory investigations in several sectors, a real estate liquidity crisis, geopolitical risks associated with Taiwan, a broader risk environment due to the invasion of the Ukraine by Russia and strict lockdown measures to contain a spike in Covid-19 cases.

Due to the risks associated with exposure to the Chinese market, Pot pointed to the significant risk that many emerging market investors face. Specifically, China and Taiwan make up around 45% to 55% of the leading emerging market indices, and the two markets account for 60% of global EM ETF allocations, accounting for $330 billion in global EM ETF assets under management.

Therefore, Pot argued that it is time to diversify beyond broken EM cues with an active lens through the ETF Asian Growth Cubs (CUBS)the first active thematic ETF to focus on public stocks from growing emerging and frontier markets, including Bangladesh, Indonesia, Pakistan, the Philippines and Vietnam.

Pot pointed to the strong fundamentals that can support the future growth of these small Asians. The ETF covers five major countries collectively covering 880 million people, 440 million smartphones and a GDP the same size as India’s GDP of $2.5 billion. The countries boast a median age of under 28 which will help drive consumption, competitiveness and digitalization, where CUBS have already surpassed the digital penetration levels of India and Latin America. These countries have some of the highest urban densities in the world, boosting productivity and accelerating economies of scale.

Moreover, these five countries have been among the 15 fastest growing economies in the world since 2000. The population growth projected by CUBS until 2050 is expected to exceed the combined population growth of China, India and the United States. Latin America. CUBS’ GDP growth from 2021 to 2026 is expected to be faster than that of the United States, emerging markets ex-China, India, China, BRICs and LatAm.

In 2021, CUBS countries had twice the purchasing power of BRIC countries in 2001 and more than 50% more than India in 2021.

Meanwhile, these emerging Asian markets remain mostly underrepresented in investors’ portfolios and are trading at relatively cheap valuations. CUBS’s valuation discount to the S&P 500 remains near ten-year highs. Valuations are down 25-50% from the peak after five years of foreign investor outflows of $9 billion, while fundamentals remain resilient, according to Pot.

Financial advisors interested in learning more about emerging opportunities in Asia can watch the webcast here on demand.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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