ASX ETFs are a great way to gain exposure to markets outside Australia.
Data shows that the largest funds by assets under management (excluding Australian focused ETFs) tend to track US stocks.
US indexes and stocks are certainly a proven investment choice – there's no debating that. However, I believe there are compelling reasons to consider adding Asian markets as well.
Here are 3 reasons why you should consider investing in an ASX ETF with exposure to Asian markets.
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Australia's economy is overconcentrated
It's well documented that the S&P/ASX 200 Index (ASX: XJO) is largely dominated by two sectors. The first is financial stocks like the big four banks, and the second, energy/resource stocks like large mining companies.
By contrast, Asian markets offer exposure to technology, manufacturing, consumer goods, and fast-growing services sectors.
Investing in Asian markets helps diversify sector, currency, and geopolitical risk away from domestic-only exposure.
Should Australian commodities and banks face significant headwinds or see share prices fall, a diversified portfolio with exposure to these Asian technology and manufacturing sectors can help offset some of these losses.
Exposure to high-growth Asian economies
Many Asian economies – including India, Indonesia, Vietnam, and parts of China – are growing faster than Australia.
These economies have younger populations, rising middle classes, and urbanisation trends that fuel long-term consumer and infrastructure demand.
For example, research from The Department of Foreign Affairs and Trade said that in 2022, Southeast Asia's combined nominal gross domestic product (GDP) of around US$3.6 trillion was larger than the economies of the United Kingdom, France or Canada, and around twice the size of the Australian economy.
Its compound annual GDP growth is projected at around 4% until 2040. Meanwhile developed economies are likely to average GDP growth of 1-2%.
Technology and innovation hubs
Several Asian countries are now at the forefront of global tech development.
Many Asian markets give direct access to fast-growing sectors underrepresented on the ASX, including:
- Semiconductors
- Artificial Intelligence infrastructure
- Cloud computing
- Consumer tech & apps
- Clean tech and EVs
I wrote last week about the importance the semiconductor industry is set to play in global AI transformation. Many of these companies based in Asia.
ASX ETFs to consider
If you are looking to diversify your portfolio to include exposure to these Asian markets, there are a few ASX ETFs to choose from.
These include:
- Vanguard FTSE Asia ex Japan Shares Index ETF (ASX: VAE) – Includes over 1700 holdings listed in Asia excluding Japan, Australia and New Zealand.
- iShares Asia 50 ETF (ASX: IAA) – Measure the performance of 50 of the largest Asian companies domiciled in China, Hong Kong, South Korea, Singapore, and Taiwan.
- Betashares Asia Technology Tigers Etf (ASX: ASIA) – Tracks the 50 largest technology and online retail stocks in Asia (ex-Japan).
