China has long been one of the most popular emerging markets, but it certainly isn’t all Asia has to offer those seeking fast growth. In some ways, it’s not even the best Asian play.

#-ad_banner-#​While China’s GDP reportedly grew around 10% annually for the past decade and is expected to expand at more than a 7% rate in the future, who really knows how reliable these figures are? Publicly traded Chinese firms are among the least transparent on Earth. And China’s economy is under the thumb of the central government, which is secretive and riddled with corruption.

So despite being the world’s second-largest economy, China may not be doing as well as it seems. And Chinese stocks may sooner or later prove to be greatly overvalued, even with the underperformance of the past few years.

I think investors will be better off limiting their China exposure and focusing more on another Asian region where there are exciting investment opportunities — and a more transparent business environment. As a “frontier market,” this area is one of the last places in the world with the faster growth that typifies emerging markets. And there’s better diversification potential since the area consists of 10 Asian nations.

​These 10 countries — collectively known as the Association of Southeast Asian Nations (ASEAN) — will have a combined GDP of more than $2.7 trillion this year, analysts estimate. This would make the ASEAN economy the world’s eighth-largest and put it on par with places like Germany, Russia, Brazil, the U.K. and France, which are expected to have GDPs ranging from $2.3 trillion to $3.3 trillion this year. 

What’s more, ASEAN’s projected growth rate of 5.4% between this year and 2018 rivals India’s 5.9% and blows away the U.S.’ 2.4%.

An important catalyst for ASEAN is an increasing willingness to address widespread corruption, a potentially huge drag on economic growth if substantial chunks of company profits end up going for bribes and other illicit activities. In Thailand, for instance, the government has contractors sign so-called integrity pacts, agreements not to use bribery to get contracts or favorable treatment. 

Other ASEAN nations with serious corruption problems, such as Cambodia and Vietnam, are also taking on the issue through increased legislation and enforcement. In fact, according to the Corruption Perceptions Index of Transparency International, a non-profit non-government organization that monitors and reports on corporate and political corruption, Singapore is the  fifth-least corrupt nation in the world. Singapore isn’t shy about exposing and punishing offenders, even in cases of corruption involving high-profile government officials.

Notably, ASEAN countries appear open to constructive criticism. Former World Bank President Paul Wolfowitz has described these countries as problem solvers and said they respond well to poor rankings on the World Bank’s “Doing Business” report. The report rates countries on multiple factors such as ease of doing business, protecting investors, and enforcing contracts.

A huge tailwind should be the formation of the ASEAN Economic Community (AEC) sometime next year. Previously set for launch in 2020 but fast-tracked because of the potential benefits, the AEC will be a free-trade zone intended to increase regional commerce and investment and improve ASEAN’s global influence. The ultimate vision is for an integrated, highly competitive market with common infrastructure and communications, standard professional qualifications, close cooperation on macroeconomic issues, and equitable economic development.

As ASEAN’s largest trading partner, China will likely continue to play a major role in the region’s growth. For instance, ASEAN manufactures a variety of materials, parts, and products for export to China (and other countries) — electronics, fuels, appliances, rubber, nuclear reactors, motor vehicle parts and plastics, to name just a few.

Between imports and exports, trade between China and ASEAN has risen fivefold during the past decade to nearly $500 billion per year and could double to $1 trillion by 2020, analysts estimate. During that time, China also aims to increase its direct investment in ASEAN fivefold to $150 billion annually from $30 billion a year now.

Yet another factor in ASEAN’s favor is a large, youthful population most economists consider essential for rapid economic growth. The region has a combined total of 670 million people (more than twice that of the U.S.) — and two-thirds of this population is less than 35 years old.

You can invest in the region through individual stocks, country-specific exchange-traded funds (ETFs) and mutual funds, and investments that cover the entire region. I’d avoid the individual stocks because so few trade on major U.S. exchanges. Those that are available domestically most often trade on over-the-counter exchanges, which have less stringent reporting requirements.

A country-specific approach is most appropriate for those with the highest risk tolerance, since their investment is exposed to the often considerable political, exchange rate and other risks of individual countries. Those interested in this approach might start by looking into ETFs like Market Vectors Indonesia (NYSE: IDX), Market Vectors Vietnam (NYSE: VNM), iShares MSCI Thailand (NYSE: THD) and iShares MSCI Philippines (NYSE: EPHE). All four are performing well this year and have reasonable expense ratios.

Investors can take a more diversified basket approach with an ETF like Global X FTSE ASEAN 40 ETF (NYSE: ASEA), a 40-stock portfolio mainly invested in Singapore, Thailand, Malaysia and the Philippines. ASEA currently has an attractive 3.5% yield and is up about 11% this year.

For investors who prefer even further diversification, there are a number of comprehensive Asian funds. One example is Fidelity Emerging Asia (NASDAQ: FSEAX), a 100-holding portfolio that includes the largest Asian emerging markets like China, India and Taiwan but provides good ASEAN exposure, too.

​Risks to Consider: All of the ASEAN investments I’ve described can be unbelievably volatile and may suffer extended periods of severe underperformance.

Action to Take –> Consider devoting a meaningful portion of your equity portfolio to the ASEAN region, an emerging Asian powerhouse that could one day rival India, China and other leading economies. Be ready to buy and hold because you’ll likely have to endure some long, deep downturns in order to capture the exceptional long-term potential the region has to offer.

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