Investors are starting to realise that south-east Asia could be the key to decent investment returns over the next few years as the Australian and New Zealand economies languish.
Many of our more populous neighbours boast economies that are growing twice as fast – if not faster – than ours in what could be a rewarding opportunity for risk-tolerant investors. Australian companies have access to capital and the expertise required to capitalise on a wide range of opportunities overseas.
We've seen it recently with Blackmores Limited (ASX: BKL) and Bellamy's Australia Ltd (ASX: BAL), with vitamins and baby formula in China, but there are many more opportunities out there.
Here are three straightforward ways to achieve direct exposure to south-east Asian economies:
Kina Securities Ltd (ASX: KSL) is a profitable lender, wealth manager and stockbroker that conducts all of its operations in Papua New Guinea, a fast-growing nation that is one of our closest neighbours. Kina Securities has a Tier One capital adequacy ratio of 31% (regulatory minimum of 8%) which is nearly three times higher than that held by domestic banks like Commonwealth Bank of Australia (ASX: CBA). The company also achieves a Net Interest Margin of 8% on its loans, some four times higher than our Big Four banks.
Westpac Banking Corp (ASX: WBC) recently sold a majority of its Pacific island banking operations to focus on Papua New Guinea and a couple of other nations, which indicates the potential of this region. Kina's margins make it worth a closer look, although juicy profits are also a ripe target for competitors like Westpac.
iCar Asia Ltd (ASX: ICQ) is a small, as yet unprofitable business that operates automobile classified websites in Indonesia, Malaysia, and Thailand. Its websites are market leaders in their respective nations and the company is transitioning towards profitability through price rises and a growing number of listings. Management has stated the company has enough funds to see it through to break-even point, which is expected to come late in 2017.
Digital advertising accounts for just 4.1% of total vehicle advertising spend in 2014, and this portion is expected to more than triple by 2020. With a growing advertising market and demographic changes such as rising wealth and a young population, iCar appears well placed to capitalise on the wealth of these south-east Asian nations.
Trustee for AMP Capital China Grwth Fund (ASX: AGF) is a capital growth fund that invests solely in Chinese 'A' shares traded on the Chinese stock exchange for the purpose of achieving index-beating capital growth over time. The fund has been a decent performer, returning an average of 10% per annum since inception in 2007.
Currently, this exchange traded fund (ETF) can be bought for $1.01, a discount to its Net Asset Value (NAV). This appears to be largely a result of investor nervousness over the true value of Chinese shares, whose value is propped up by a number of government measures. While a direct way to gain exposure to one of the world's biggest economies, investors need to be cautious that the underlying stock exchange is not particularly transparent.
