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Why these 2 ASX ETFs could be market-beaters due to China

Chinese economic growth could provide huge growth to two ASX exchange-traded funds (ETFs).

ETFs are becoming very popular for people to take a passive approach to invest in.

Some of the biggest ETFs have very diverse portfolios such as Vanguard MSCI Index International Shares ETF (ASX: VGS) and iShares S&P 500 ETF (ASX: IVV).

However, some investors may want their ETFs to be more growth-orientated but still be diverse. Perhaps investors want the ETFs to focus on a specific idea.

One key idea is the growth of the Chinese middle class. Joe Tsai, the Executive Vice Chairman of Alibaba supposedly said “There are 300 million people in China’s middle class. In the next 10-15 years, that number will double to 600 million. That number is not going to stop, trade war or no trade war.”

Therefore, Chinese growth could be an excellent opportunity for these two ASX ETFs:

Vanguard FTSE Asia Ex Japan Shares Index ETF (ASX: VAE)

This ETF gives exposure to 850 Asian-based businesses with 32.7% of the index based in China, 13.5% in Taiwan and 12% in Hong Kong.

Its management fee is 0.4% but as the fund gets bigger that expense ratio should come down.

Some of its largest holdings include Samsung, Tencent, Alibaba and Baidu. This ETF gives exposure to the various industries, so as the whole Asian economy rises the businesses should grow too.

China isn’t the only country growing quickly. Indian businesses now represent 11% of this ETF and as India goes through its own economic transformation more businesses should arise.

Vanguard says this ETF has a price/earnings ratio of 10.7, a return on equity ratio of 15.6% and an earnings growth rate of 10.5%. It almost has a PEG ratio of 1.

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

This ETF is mainly focused on the biggest technology businesses in Asia. Unlike the above ETF, this has a smaller list of holdings and is just based on one industry.

However, as Microsoft, Apple, Facebook, Amazon and Alphabet (Google) have shown, technology may be the best place to be over the long-term.

Whilst this ETF also gives exposure to shares like Samsung, Tencent, Alibaba and Baidu, they make up a much bigger percentage of the ETF.

Foolish takeaway

Both of these ETFs could beat the ASX quite convincingly over the next decade, I’d like to make these two ETFs combined a decent amount of my portfolio, but not too much.

Asia offers a lot of opportunities but there are much higher risks relating to regulation, governance and governments.

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Motley Fool contributor Tristan Harrison owns shares of BetaShares Asia Technology Tigers ETF. The Motley Fool Australia owns shares of BetaShares Asia Technology Tigers ETF. The Motley Fool Australia has recommended Vanguard MSCI Index International Shares ETF. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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