In Asia’s emerging markets equities race, China is the fastest growing by size, but Indonesia has ranked first in growth in both the past five and 10 years.
While emerging Asia has outperformed the developed Asia-Pacific at various times in the past 10 years, volatility has remained high with emerging Asia outperforming developed Asia-Pacific when the market rises, but lagging when the market declines.
Russell Investments’ Emerging Asia Index covers 2,100 stocks in eight countries – listed in order of market capitalisation: China, Korea, Taiwan, India, Malaysia, Indonesia, Thailand and the Philippines.
The Russell Developed Asia-Pacific Index covers five countries: Japan, Australia, Hong Kong, Singapore and New Zealand (listed in order of market capitalisation).
Russell’s index strategy director, Noriyuki Oharazawa (pictured), says that while China grew the fastest, “market expansion goes not necessarily correlate with market performance”.
In the paper, “Global Markets Exploration”, Oharazawa says market expansion does not always correlate with performance, with Indonesia ranking number 1 in both the past five and 10 years, beating China which was fourth and fifth respectively in those timeframes.
Indonesia’s annualised return was 23.1 per cent in the past five years and 27.9 per cent in the past 10 years. China’s figures for the same periods were 16.7 per cent and 15.6 per cent.
While China is now the largest and fastest-growing equity market, five years ago Korea held that title, and 10 years ago it was Taiwan’s claim to fame.
Asian equity markets as a whole are expanding, and emerging Asia is growing “particularly fast”, Oharazawa says. “Ten years ago, emerging markets only accounted for 17 per cent of Asia but now accounts for 36.8 per cent.”
China has the largest investable equity market in emerging Asia, followed by Taiwan and Korea – these top three countries alone account for about three-quarters of the emerging Asia market, and have larger markets than Hong Kong, Singapore and New Zealand – which are classified as developed Asia-Pacific.
Emerging Asia small-cap stocks perform better than large caps in the same region, or small caps in developed Asia-Pacific countries. “Small caps account for about 20 per cent of emerging Asia, whereas they only account for 15 per cent of developed Asia-Pacific,” says Oharazawa.