Is This a Good Time To Invest In Asian Indices?

In recent years, the baton of growth has been passed on from the Western world to Asia. China’s US$12 trillion economy, which is growing at a healthy 6.9% clip, provides a boost to the entire region.

Several other countries are contributing to the economic expansion in Asia. India, Indonesia, the Philippines, and Vietnam have large numbers of people who are entering the middle class. Consequently, there is a greater demand for goods and services, a factor that leads to increased business activity both locally and in surrounding countries.

How can investors capitalise on this growth? Is there any way to benefit from the increase in revenues and profits that the leading companies in Asia will experience in the coming years?

The simplest and most effective way to do this is by investing in a broad-based stock market index like an Asia stock index.

Interested to invest in indices?
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Investing in market indices with futures

One way of investing in an index is by investing in index futures. These allow you to invest in the market’s performance. If you expect the market to rise, you would place a buy order. If your projection turns out to be correct, you would gain when the index rises.

Similarly, if you expected the market to fall, you would have placed a sell order. If your projection turns out to be correct, you would gain when the index falls.

Index futures contracts allow you to profit from both an increase and a decrease in the value of the underlying index, which result from a rising or falling market. It also allows you to leverage your trade without having to pay the full contract value upfront.

Many of the leading Asian Indices are available for investment through futures contracts, like the SGX MSCI Singapore Index futures, SGX MSCI Taiwan Index futures, SGX MSCI Indonesia Index futures, SGX FTSE China A50 Index futures, and the SGX Nikkei 225 Index futures.

All 5 of these futures contracts can be traded on the Singapore Exchange, and their contracts are cash-settled based on the underlying index.

For instance, each SGX MSCI Singapore Index futures contract value is S$100 multiplied by the MSCI Singapore Free Index, while each SGX FTSE China A50 Index futures contract value is US$1 multiplied by the FTSE China A50 Index.

With the SGX MSCI Taiwan Index futures, the contract value is US$100 multiplied by the MSCI Taiwan Index, and US$2 multiplied by the MSCI Indonesia Index for the SGX MSCI Indonesia Index futures contracts. Finally, the SGX Nikkei 225 Index futures, each contract value is JPY500 multiplied by the Nikkei 225 Index.

Here are some reasons you should consider investing in these Asian indices.

MSCI Singapore Free Index

Source: Shutterstock

Investing in this index is a good way to get an exposure to Singapore’s economy. The MSCI Singapore Free Index consists of the large and mid-cap segments of Singapore’s market. It has 26 constituents that account for about 85% of the market cap of the companies listed on the country’s exchange.

Performance of the index in % – (data as of February 2018)

Source: MSCI

The Index constituents include DBS Bank, OCBC Bank, UOB, and Singapore Telecom. An investment in this index will also get you an exposure to property-related stocks like CapitaLand, Genting, and Ascendas REIT.

The Singapore economy grew by 3.6% in 2017. It is expected to expand by 3.2% this year. If you believe in the country’s long-term growth prospects, investing in the MSCI Singapore Free Index could be a good decision.

FTSE China A50 Index

Source: Shutterstock

The FTSE China A50 Index comprises of heavyweights like Ping An Insurance, China Merchants Bank, and Kweichow Moutai, a beverage company. Of the 50 companies that it includes, 14 are banks and five are financial services firms.

Performance of the index in % – (data as of February 2018)

Source: FTSE

The China A50 Index includes some of the country’s largest firms. If the Chinese economy continues to expand, these companies are likely to reap the benefits.

The government has set a GDP growth target of 6.5% for 2018. Although this is a little less than the level of 6.9% achieved last year, it is substantially more than the rate at which the Western economies are growing.

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MSCI Taiwan Index

Source: Shutterstock

Taiwan’s economy benefits greatly from the country’s tech prowess. Its tech companies are acknowledged to be among the most advanced in the world.

Taiwan Semiconductor and Hon Hai Precision are not household names, but these firms are leaders in their respective fields. Taiwan Semiconductor is the world’s largest contract chip manufacturer. Hon Hai is the primary assembler of Apple iPhones.

These two firms make up about 40% of the MSCI Taiwan Index, which has a total of 90 constituents accounting for 85% of the market cap in Taiwan.

Performance of the index in % – (data as of February 2018)

Source: MSCI

Japan Nikkei 225 Index

Source: Shutterstock

Japan’s resurgent economy has resulted in the country’s main stock index registering handsome gains in recent years. The Nikkei Stock Average (Nikkei 225) Index consists of 225 stocks from the first section of the Tokyo Stock Exchange.

About 45% of the Index by weight consists of tech firms. These include Fanuc, Softbank Group, Tokyo Electron, KDDI, Kyocera, and Terumo. Consumer goods companies form another 22% of the Index.

In the last one year, the Nikkei 225 Index has gained over 11%. Over a longer time frame of three years, it has gained 17%.

Three-year performance of the Nikkei 225

Source: Financial Times

The Organisation for Economic Cooperation and Development (OECD) estimates that the Japanese economy will grow at 1.24% in 2018 and 0.96% in the subsequent year. That’s a fairly healthy rate for a mature economy.

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MSCI Indonesia Index

Source: Shutterstock

The MSCI Indonesia Index is a broad-based index with 29 constituents. In the 12 months to February 2018, it has provided a return of 21.2%.

The Index comprises banks (Bank Central Asia, Bank Rakyat Indonesia, Bank Negara Indonesia, Bank Mandiri), telecom service firms (Telekomunikasi Indonesia), and consumer firms (Astra International, Unilever Indonesia), among other companies.

Performance of the index in % – (data as of February 2018)

Source: MSCI

With the World Bank projecting a 5.3% rate of growth for Indonesia in the 2018-20 period, the country’s stock market could continue to perform well.

Slash your trading costs

Phillip Futures, Singapore’s premier broking firm, is providing investors with a unique opportunity to reduce their trading costs.

As part of its 35^th anniversary celebrations, it is offering a discount of 35% on trading costs when you trade the SGX MSCI Singapore Index futures, SGX MSCI Taiwan Index futures, SGX MSCI Indonesia Index futures, SGX FTSE China A50 Index futures, and the SGX Nikkei 225 Index futures, which are based on the five indices mentioned above.

The offer is available to individual investors and joint account holders and only valid for electronic trades. The commission rebate will also be capped at S$350 per promotional month per customer.

This promotion runs from 1 April to 30 June 2018. Terms & Conditions (T&Cs) apply.

Get a 35% discount off your trading costs when you trade these 5 Asian index futures now!

This article is sponsored by Phillip Futures. All views expressed in the article are the independent opinion of ZUU online.

Phillip Futures is one of the region’s top brokerages for the trading of global futures, foreign exchange, energy, metals and commodity futures. It was established in 1983 as a member of PhillipCapital Group, and was one of the founding clearing members of Singapore Exchange Derivatives Trading. It currently holds the Capital Markets Services Licence issued by the Monetary Authority of Singapore (MAS). 

Phillip Futures is also the first to launch the powerful MetaTrader 5 (MT5) platform in Singapore. MT5 offers advanced technical analysis tools and allows traders to create their own trading strategies.

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