By MoneyMorning.com.au
China and India are now seen as distinct investment areas, rather than just another part of an emerging-market whole. But this isn’t true of Southeast Asia and the ASEAN bloc.
Few investors think about this region in its own right. And there are very few dedicated Southeast Asia funds. Even some that are supposed to focus on the region have drifted into investing in Korea, Taiwan and China.
Yet, this is a major part of the emerging world and it deserves far more attention than it gets.
From an investment viewpoint, the best way to assess Southeast Asia is to look at the ASEAN countries collectively, rather than as individual economies. The ten-member ASEAN bloc (Association of South East Asian Nations) consists of founders Indonesia, Malaysia, Philippines, Singapore and Thailand, as well as later entrants Brunei, Vietnam, Laos, Myanmar and Cambodia.
And there are several reasons why the region is well worth a look. First, ASEAN is slowly morphing from a talking shop, into what could be a meaningful economic bloc.
ASEAN has been around for a long time – the first five members joined in 1967. For much of that time it was largely meaningless, with little real cooperation between most of these members. But events of the last decade – such as the global financial crisis and the growing clout of China and India – have made Southeast Asia governments aware that they could benefit a great deal from pulling together.
So ASEAN is now working towards the ASEAN Economic Community (AEC). This is a EU-style project to free-up movement of goods, capital and labour across the region. Whether some of the loftier goals for the AEC will be achieved isn’t clear. But when it comes into force in 2015, there should be very large cuts in tariffs and other barriers to trade and cooperation.
Second, a unified ASEAN is a significant marketplace by any standards. It has a population of almost 600 million, with better demographics than China, Europe or the US. Most people within ASEAN remain relatively poor, but most countries have an expanding middle class. If development continues successfully, it promises strong consumption growth for many years to come.
The third positive, is that there are few financial barriers to consumption and investment growth in the future. ASEAN learned a hard lesson from the 1997 Asian crisis and today local finances are in pretty good shape. Debt levels generally remain low for governments, households and corporates, while ASEAN banks are mostly well capitalised with good balance sheets. While most of the world must deleverage, ASEAN is on the right side of the credit cycle.
Fourth, ASEAN is diverse. It spans the entire range from wealthy, developed Singapore to poor, authoritarian Burma. This means it offers a wide range of investment opportunities. It’s well provided with natural resources, without suffering the ‘resource curse’ where unbalanced economies become too dependent on oil or mining. Even being often overlooked by investors can be an advantage, since there are plenty of under-researched companies where an active investor can find value.
In case this sounds too Panglossian, ASEAN is obviously not immune to troubles in the rest of the world. It’s geared to export demand from the US, Europe and China, so recessions or slowdowns in these will definitely be noticed in Southeast Asia.
What’s more, financial ties in the form of European bank lending to the region means it will feel the impact of a European banking crisis. It’s worth noting though, that ASEAN is probably better placed than most of the emerging world, as most European lending to Asia is trade finance where the gap can more easily be filled by loans from governments and multilateral institutions such as the Asian Development Bank.
But I believe that ASEAN deserves more attention than it’s yet getting – and that there are some very attractive long-term opportunities here.
Cris Sholto Heaton
Contributing Editor, Money Morning (UK)
Publisher’s Note: This is an edited version of an article originally published in MoneyWeek (UK).
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