ASEAN
bloc offers a consumption theme with a strong overlay of commodities, tourism
and growth for the investors
The Asean region is a fairly large economic
bloc today in terms of GDP (gross domestic product) and is expected to be among
the top five in the world over the next 15-20 years. From an investor's
perspective, the Asean bloc offers a consumption theme with a strong overlay of
commodities, tourism, infrastructure, capital expenditure, currency and growth
emanating from China.
Singapore, Indonesia, Malaysia, Thailand and
the Philippines are core of the Asean, while Vietnam, Brunei, Lao PDR, Cambodia
and Myanmar are the satellite countries.
DEMOGRAPHIC
DIVIDEND
Like India and China which boast of a
population of about 1.2 and 1.3 billion people, ASEAN also has a fairly large
population of about 600 million people growing rapidly.
In that context, the region offers a rich
investment opportunity due to its strong demographic dividend. A young growing
population with strong income levels and low consumer debt-to-GDP are the
growth drivers .
While domestic consumption is a dominant
theme, it is not the only one. ASEAN contributes to 87 per cent of world's
crude palm oil production and 82 per cent of the world's rubber production.
In addition, Indonesia is ranked third amongst
the world's top five regions with the highest overall mining potential;
Freeport in Indonesia is the world's largest gold mine in terms of reserves;
Indonesia is the world's largest thermal coal exporter, Indonesia and Malaysia
are the world's largest two countries in terms of LNG exports.
In summation, the region is rich in natural
resources including precious metals which do contribute to economic growth in
the long term.
TOURISM
POTENTIAL
In terms of tourism, the region is fairly well
known to most people in Asia including India. While the entire region offers a
strong tourism play, it is worthwhile to note a couple of interesting facts
about Singapore and Thailand. Singapore is the only developed market in the
Asean bloc and in addition to being a big play in terms of private banking, the
country also offers a very powerful tourism story. Gaming and entertainment
resorts attract many to Singapore not only from the Asean region, but also from
other parts of Asia and the world. Tourism industry in Singapore (in terms of
arrivals) is expected to grow by more than 20 per cent year on year over the
next few years.
In addition to tourism, Thailand offers a very
strong rural consumption story. The genesis for this is that land ownership
rests with the citizens and increase in prices of commodities (as witnessed in
the last couple of years) obviously benefits the owner of the land. The new
government's (elected in July '11) as well as the previous government's
policies are/were mostly centered on rural prosperity.
FISCAL
MANAGEMENT
While most countries in the world were
affected by the global financial crisis of 2008, Asean countries faced an
equally severe crisis during the Asian financial crisis of 1997. However,
fiscal management and implementation of austerity measures have seen these
countries moving from a “fiscal deficit” situation in 1997 to a “fiscal
surplus” situation now.
Central bankers in the Asean region have
reacted slightly differently in handling “inflation”, a problem which surfaced
across the world recently, especially in emerging markets. While most central
bankers use interest rates as a primary tool to combat inflation, Asean central
bankers have used a combination of interest rates and currency appreciation as
means to combat inflation. As a result of this, most Asean currencies over the
last 12-18 months have appreciated against the US dollar.
The Asean has been one of the top performing
regions from a stock market returns perspective.
It is not a short-term phenomenon alone as the
region has delivered performance over the medium- to the long-term as well.
Asean has also delivered returns with lower volatility relative to India and
does not have a strong correlation to India (0.50 to 0.75).
From a valuation standpoint, the current
valuations are cheaper than the 5 years average with strong earnings growth as
per IBES aggregate estimates. Even as these countries are not immune to the
current turmoil in the financial markets, the underlying economic fundamentals
of Asean remain strong.
These countries offer a diversified set of
investment themes which have played out in the past and are expected to do so
in the future as well.
ARINDAM GHOSH
Business & Investment Opportunities
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