A trio giving China a run for its money

published 10 October 2014

China's dramatic rise shows how the balance of economic power is shifting away from the West. The latest growth figures reveal that, after differences in prices are taken into account, China officially took over from America as the world's largest economy this summer.

Given that background, it's easy to forget that other countries in southeast Asia are also growing at a fast rate, and in a more sustainable fashion. Three of the most dynamic countries in the region are the Philippines, Malaysia and Indonesia.

The trio all benefit from their location, which puts them in the middle of several important global shipping lanes. They also have stronger political and economic institutions than China.

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They are all democracies, with Indonesia recently electing a new government. And their fast-growing populations should also help them avoid the looming demographic problems that threaten China.

The Philippines is the fastest growing of the trio. In the first half of last year the Philippines actually grew faster than China. Two main ETFs (exchange-traded funds) that track the Philippines' market are the db x-trackers MSCI Philippines IM Index UCITS ETF (LSE: XPHI) and the iShares MSCI Philippines ETF (NYSE: EPHE).

Both track the MSCI Philippines Investable Market index, covering around 85% (by value) of the shares on the Philippine stock exchange. They also have similar total expense ratios of 0.65% and 0.61% respectively.

Moving on to Malaysia, it's a middle-income country with a per-capita GDP on a par with that of Russia. It has gradually moved up the value chain, becoming one of the leading electronics and semiconductor manufacturers in the world. Growth is expected to be 5.7% in 2014 and 5.2% in 2015.

The HSBC MSCI Malaysia UCITS ETF (LSE: HMYD) is the cheapest UK-listed fund, with a total expense ratio of 0.6%. However, the US-listed iShares MSCI Malaysia Index Fund ETF (NYSE: EWM) has a slightly lower total expense ratio of only 0.47%.

Indonesia is also growing at a fastrate, with projected growth of morethan 5%. Thanks to its large population of 250 million, it is now the ninth-largest economy in the world. We like theHSBC MSCI Indonesia UCITS ETF(LSE: HIDR) and the iShares MSCI Indonesia ETF (NYSE: EIDO).

The Market Vectors Indonesia Small-Cap ETF (NYSE: IDXJ) is also worth a look because it takes a slightly different approach by focusing primarily on small-cap Indonesian stocks.

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri