The big fall in Asian stock markets, which has seen domestic Chinese and the Hong Kong markets pull back by around 20%, has prompted renewed interest from Australian investors looking to diversify offshore. Notwithstanding the concerns about a trade war with the USA, many experts argue that the case for investing in China is as sound as ever.
Hong Kong Hang Seng Index: 5 years (source cnbc.com)
Shanghai Composite – 1 year (source cnbc.com)
Charlie Aitken made a strong case for investing in Asia the other week in The Switzer Report. In an article titled China: where growth and value collide, Charlie argued that investors should not lose sight of the bigger picture when it comes to China. Key structural themes driving growth include the size of the addressable market, the rising middle class, the rapid adoption of technology and increasing consumer spending as incomes rise and behaviour “westernises.” He expanded on this thesis last Thursday and noted the impact of a rising US dollar on emerging markets. He nominated four Chinese stocks – Tencent (the “Facebook of China”, HK:0700)); Alibaba (the “Amazon of China”, NYSE:BABA); the insurance giant Ping An (HK:2318) and TravelSky (the provider of a monopoly airline booking system and a way to play the China tourism theme, HK:696).
Notwithstanding the arguments that are advanced for investing in Asia, industry research and ATO investment statistics show that only a handful of Australian investors have allocated funds to Asia. One of the reasons cited is that many investors don’t know how to invest in Asia or what to invest in. In reality, it is now a lot easier to invest in Asia, and in this article, I will outline the “how and what”.
Investing directly
CommSec provides access to buy or sell shares in 25 different countries. In Asia, this includes Hong Kong, Japan, Indonesia, Philippines, Singapore and Thailand. CommSec provides the online trading platform and 24 x7 telephone support service, with the securities held by its custodian, Pershing (a subsidiary of BNY Mellon).
Brokerage on trades in Asia is US$39.95 or 0.40% per trade, whichever is the higher. For Hong Kong, there are also exchange fees of approximately 0.1077%. You may also have to pay a custody inactive account fee of US$25 pa (this is waived if you do at least one trade in a year). You will generally need to purchase US dollars (this can be done through CommSec – there will be a small spread to pay), and depending on the country, you may need to pay another spread to convert the US dollars into local currency. Any dollars that are surplus to the trade can be kept with Pershing, and in fact, you can hold cash in multiple foreign currencies.
You will need to open a specific International Share Trading Account. This can be started online and includes tax forms for the US Department of Inland Revenue.
Nabtrade also provides access to international share trading. Trades can be placed online for the US, UK and German markets, and in Asia, Hong Kong. Brokerage starts from a very low A$14.95 for trades up to A$5,000, A$19.95 for trades up A$20,000, and then 0.11% of the trade value over A$20,000.
Transactions are settled in Australian dollars. Unlike the CommSec service, where you can hold foreign currency, each trade is converted to or from Australian dollars at an applicable FX rate. For example, if you are buying a Hong Kong stock, Nabtrade will debit your Australian dollar cash account for the equivalent Hong Kong dollar amount. When selling the Hong Kong listed stock, they will pay your Australian dollar cash account with the proceeds already converted into Australian dollars. Nabtrade says that international orders incur a foreign exchange conversion spread of between 0.5% and 0.8%.
There are no custody fees per se, but similar to CommSec, if you don’t do any trades, you will be charged an inactive fee, which is set at 0.50% pa of the average daily international holding balance.
Before you start trading with Nabtrade, you may be required to provide some additional identification documents and tax information for the US Department of Inland Revenue.
Other brokers to offer access to Asian markets include IG Markets (Singapore only) and Saxo Bank.
And of course, you can buy more than just shares. Most exchanges have a suite of exchange-traded funds and other products available.
Invest in Asia on the ASX
If you don’t wish to invest through offshore exchanges, there are several ways you can get exposure to Asia by investing on the ASX.
The most vanilla is an index tracking exchange traded fund (ETF). iShares has 7 ETFs that track Asian indices, including IZZ which tracks a China Large Cap Index or (IHK) which tracks the MSCI Honk Kong index. Vanguard has VAE (Vanguard FTSE Asia ex Japan) fund.
Kerr Neilson’s Platinum Asset Management has been managing monies in Asia for almost two decades and it recently introduced PAXX, an ASX quoted managed fund that acts as feeder for its Platinum Asian Fund. The underlying fund has returned 9.8% pa over the last 10 years and 13.8% pa over the last 5 years to 31 May.
The Platinum Asia Fund aims to provide capital growth over the long-term by providing exposure to undervalued listed investments in the Asian region (excluding Japan). It typically holds 50 to 100 securities, with the largest (Alibaba) having a weighting of 3.7% as at 31 May.
PAXX is an open-ended fund that uses a market maker to help ensure that it trades on the ASX around the underling NTA (net tangible asset value). An indicative NTA is calculated in real time and displayed on Platinum’s website. Management fees are 1.15% plus a performance fee of 15% of any outperformance.
Ellerston Asian Investments Limited (ASX: EAI) is a listed investment company. Managed by Ellerston Capital, it is a concentrated, high conviction, growth-orientated portfolio which is benchmark independent by country, sector and security. The core thematics underpinning the growth opportunities within the portfolio include the rising Asian consumer, digital disruption in Asia, structural reform in India and the capital market liberalisation in China.
Among its top holdings at the end of May were Tencent (2nd at 6.7% weighting), Alibaba (3rd at 5.8% weighting) and Ping An Insurance (4th at 5.2% weighting). Performance for the 12months to 31 May was 13.8%, marginally higher than the MSCI Asia ex Japan index of 12.8%. On Friday, EAI closed on the ASX at $1.07. Its last reported NTA was $1.1741 on 29 June.
Paul Moore’s PM Capital manages the PM Capital Asian Opportunities Fund Limited. A listed investment company trading under stock code PAF, it aims to create long-term wealth through a concentrated portfolio of typically 15-35 quality companies within Asia (ex Japan) trading at prices different to their extrinsic value. It closed on Friday at $1.205, Its last reported NTA was $1.2646 as at 22 June.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.
