Know your Holdings: 1nvest MSCI EM Asia Index Feeder

Emerging markets are countries with developing economies that have the potential for significant growth. Some of the populous and fastest-growing economies can be found in the Asian region, making it the major hub of emerging markets. 

The 1nvest MSCI EM Asia Index Feeder is an exchange-traded fund (ETF) that tracks the performance of the MSCI Emerging Markets Asia Index. The MSCI Emerging Markets Asia Index is a market-cap weighted index that tracks the performance of large and mid-cap stocks in the eight emerging Asian markets.

Countries considered to be emerging markets in the Asian region include China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand.

Disclaimer: The holdings may not be limited to the logos on the image and may change. The use of logos are for educational purposes only.

The 1nvest MSCI EM Asia Index Feeder has 1,174 constituents. These are the stocks that make up the MSCI Emerging Markets Asia Index. The ETF is denominated in rands, but the underlying stocks are priced in foreign currency. A deprecation in the rand can lead to higher returns if the underlying stocks increase in value in foreign currency terms.

The top 10 constituents include Taiwan Semiconductor Manufacturing (TSMC), Tencent Holdings (Tencent), Samsung Electronics, Alibaba Group Holding, Reliance Industries, Meituan, China Construction Bank (CCB), Housing Development Finance Corporation (HDFC), ICICI Bank and Infosys.

What’s been happening in the markets

Aside from being emerging markets, the eight Asian EMs are also the markets with the potential to drive global economic growth, given their population sizes, which contributes to positioning them as global manufacturing and production hubs, especially for tech. Research from Abrdn Research Institute (aRI) shows that Asian EMs could potentially benefit from a demographic dividend.

“As urbanisation expands and personal incomes rise, Asia is set to power global consumption of goods and services."

Given its population size, China has long been a global manufacturing hub for tech companies, but this (amid the global independence shift) has started shifting towards other emerging Asian economies, including India. Not only did India surpass the Chinese population recently, but the country also announced a licensing requirement for the import of laptops, PC, and tablets. This move could potentially force big tech companies like Apple, Dell, and Samsung to start local manufacturing in the country.

An official from India recently said that leading laptop companies have registered for the production-linked incentive (PLI) scheme, and some of them are ready to start manufacturing in India at any time, adding that global server companies have said that they want to make India an export hub for servers.

Local manufacturing can benefit local companies by providing access to new technology and expertise, increasing investment and economic activity, improving infrastructure and logistics, and transferring knowledge and technology.

Regarding population growth, China has an aging population problem, and the birth rate has been on a downtrend; on the other hand, countries like India, Indonesia, the Philippines and Vietnam enjoy more youthful demographics. A youthful population can contribute to a growing economy by providing a larger workforce and other benefits.

The aRI report also showed that Emerging Asia could account for 58% of global growth by 2050. Meanwhile, global growth is set to slow from around 2.5% a year to 1.5% a year by 2050, partly due to less support from population growth in the major economies.

Peter Branner, chief investment officer at the institute, said: “Whether emerging Asian economies will ultimately deliver this expected outperformance does, of course, still depend on a multitude of factors, such as the strength of government institutions and the ability to navigate political pressures, economic imbalances and other macro risks.”

The first half of the year 2023 was characterised by uncertainty and inflation. The US central bank has signalled that it may be nearing the end of its rate hiking cycle, but further tightening is likely. The end of rate hikes could mean positive news for Asian emerging markets. You can read the full report here.

A pause would likely lead to a slowdown in capital outflows from emerging Asia markets, as investors would no longer be incentivised to move their money to the US for higher yields. 

This can also contribute to increased investment that can help accelerate local manufacturing and earnings for local companies. Foreign investors often bring new technologies and expertise to emerging markets, which can further boost productivity and competitiveness - increased investment can also lead to improved infrastructure, making it easier and possible for businesses to operate and attract more investors.

Dividends 

The newly listed 1nvest MSCI Emerging Markets Asia Index Feeder ETF (ETFEMA) has not yet paid any dividends. It was listed on the Johannesburg Stock Exchange (JSE) in August 2022.