Investors turn to emerging markets as alternative destinations to China

[Images source: Gettyimagesbank]

South Korean investors are paying more attention to emerging markets as alternative investment destinations to China amid the realignment in the global supply chain led by the U.S.-China trade dispute and Russia-Ukraine war.

Funds that invest in markets like Vietnam, Indonesia, India, and Mexico have been generating high returns.

According to Korea Exchange on Wednesday, the ACE Vietnam VN30 ETF (Synth) posted an average return of 11 percent this year. The yield on the ACE Mexico MSCI (Synth) ETF was 26.2 percent, the ACE Indonesia MSCI (Synth) 12.3 percent, and TIGER India Nifty 50 Leverage 12.4 percent.

Investors can invest in the markets via public offering funds, such as Fidelity India Securities Feeder Investment Trust. For investment in Indonesia, NH-Amundi Indonesia Focus Securities Investment Trust, a public fund offered by NH-Amundi Asset Management Co., is an option. There are no public offering funds only for Mexico in Korea.

The emerging markets have their own advantages in their competition with China.

Vietnam’s rapid economic recovery from the pandemic is significant. It recorded an economic growth of 8.02 percent last year, the highest in 12 years. The country has also emerged as a new production site as global companies, such as U.S. tech giant Apple Inc., moved their production from China to the country last year.

India has become home to global tech giants thanks to its promising labor force in information and technology. Global tech firms, including LG Electronics Inc. and Google said they will ramp up their production in the country.

According to the United Nations, India became the world’s most populous country before China with 1.4 billion people. India beat out the U.K. and ranked No. 5 in terms of nominal gross domestic product last year. A strategic security dialogue, known as the Quadrilateral Security Dialogue (Quad), among the U.S., Japan, Australia, and India was formed to contain China‘s rise in global supply chains.

Indonesia is seeking to replace China based on its abundant natural resources, such as nickel, coal, and palm oil. As nickel is one of the key materials for secondary batteries, global battery manufacturers, such as LG Energy Solution Ltd. (LGES) and China’s Contemporary Amperex Technology Co. (CATL), are busy increasing facility investments in Indonesia. Even home appliance makers have expanded their production capacity in the country.

Mexico has a nearshoring advantage as it is close to the U.S.

Investors, in the meantime, are advised to keep vigilant as emerging markets are vulnerable to high volatility and unexpected shocks because of their weaker fundamentals than advanced markets.