The Asian sweet spot

From the investment point of view, the Asean-5 is a particularly interesting subset because its members are in a sweet spot for growth. They are neither too rich to grow quickly, as are Singapore and Brunei, the two affluent city states in the group. Nor are they still so poor that their progress remains especially uncertain, as applies to the remaining three of the 10 - Cambodia, Laos and Myanmar.

The potential of the Asean-5 group seems sufficiently clear that it even gets its own line of data in the projections for global growth from the International Monetary Fund (IMF), the nearest thing there is to a global central bank. In its January update, the IMF reckons that output for the five will grow 5.2 per cent this year and 5.3 per cent next. That's a minor reduction on its previous estimates in October, but that's not surprising since the IMF thinks global growth will be 0.3 per cent slower both this year and next than it had previously reckoned.

True, the Asean-5's growth rate still lags the pace set by a slowing China and by India. Even so, it's usefully faster than the rest of the developing world, which no longer looks as if it's actually developing much at all. Russia and its former satellites are shrinking and Latin America and the Caribbean are in stasis.

So, both for the foreseeable progress of the Asean-5 and for its longer-term potential, I want some exposure in the Bearbull Global Fund. You would think that could be fairly easily achieved given the alacrity with which index setters conjure up new indices and ETF providers launch funds to track them. As far as I know, however, there is nothing. Yes, there is the FTSE Asean 40 index, but this has a heavy bias towards Singaporean companies (38 per cent of the index) and nothing from Vietnam. The MSCI South East Asia index has virtually the same deficiencies. The S&P South East Asia 40 index comes closest. This lacks a contribution from Vietnamese companies, but solely comprises constituents from the other four countries. Yet, miserably, there is no London-listed ETF that tracks this index; indeed, I can't find one anywhere.

That's a pity. While I wait for the gap to be filled, I will have to invest via country-index trackers - hence the table. This shows what's readily available via the London market. Clearly there is no choice for Philippines and Vietnam but to opt for the ETFs from Deutsche Bank's db x-trackers stable of funds.

What's pleasantly surprising, however, is that the Philippines tracker - db x-trackers Philippines IM (XPHG) - fully replicates the 42-company index it follows. That means it achieves its aims through holding the right weighting in the underlying stocks. The alternative plan is to track an index by betting with a counter party as to which way the index will move and insuring the risks with collateral comprising assets that may have little connection with the market in question (labelled 'indirect via swaps' in the table).

ETF providers often have little choice but to use indirect replication. For instance, Vietnam's HoChiMinh Stock Exchange with an aggregate market value of about £30bn (about the same as Athens) and restrictions on foreign investment must lack liquidity. Dangers can be reduced by the quality and the quantity of the collateral, even so this is a riskier approach than full replication.

Happily, with the exception of Vietnam, among the funds for all the other countries there is the offer of an ETF that uses full replication and that's what I would choose. It means that for Indonesia and Malaysia I must invest in HSBC funds that distribute the dividends they receive. I would prefer automatic re-investment of income rather than the bother of handling the cash. Still, when market volatility boils - as it will - I guess that's an acceptable price for the piece of mind that full replication brings.

Ways into the 'ASEAN 5'