Jim
Rogers, co-founder of the Quantum Fund with George Soros and the entertaining
author of a couple of On the Road-style investment books, understands the power
of a headline.
So I wasn’t unduly surprised to read recently
that he believes Burma to be “the best investment opportunity in the world,
with North Korea not far behind”.
He exaggerates to make a point, but his
comments gave me pause for thought because I am as guilty as anyone of lazily
describing the investment world as a three-legged stool, as if the US, Europe
and China were the only markets that mattered. In particular, his interest in
Burma and North Korea is a reminder that there is a lot more to Asia than the
Middle Kingdom.
Some of the countries that make up the ASEAN
region have been among the best places to ride out the financial crisis. Stock
markets in Indonesia and Thailand, in particular, trade at a healthy premium to
their pre-crisis levels, while the world average remains deeply in negative
territory compared with five years ago.
South-east Asia as a safe haven is a novel
concept for anyone who remembers the region’s own devastating financial crisis
in the late 1990s. I have a cartoon on my wall from a newsletter I published at
the time showing a row of sick-looking tigers in hospital beds with
thermometers in their mouths. The region has never really shaken off its image
as the riskiest of emerging market bets.
But confidence is growing in a region of 600m
people, with a fast-expanding middle class driving consumption and economic
growth. The International Monetary Fund recently downgraded growth for the
ASEAN region, showing it cannot completely buck a slowing global recovery. But
it has still pencilled in 6.1pc growth next year, compared with 0.7pc for the
euro area and 2.3pc for the US.
The ASEAN should not be underestimated. With
a combined stock market capitalisation of more than $2 trillion and trade with
China expected to top $500bn by 2015, the region is grabbing the attention of
increasing numbers of investors. In the first half of this year, almost as much
money flowed into ASEAN funds as flowed out of China. Having been the first
investments to be liquidated in an emergency, they are taking on the
characteristics of a port in the storm.
Many of the region’s attractions are familiar
to China bulls. Rapid urbanisation and infrastructure build tell a similar
story, for example, as do the robust government finances that make a high level
of public investment possible. But there are differences, too. China’s one-child
policy is leading to a rapid ageing of its population, but in South-east Asia
more than 40pc of the population is under 25, putting the region in a
demographic sweet spot.
The ASEAN region is extremely diverse,
however, so it is not possible to generalise beyond the obvious themes of
higher consumption and investment. Vietnam and Singapore share membership of
the economic organisation, but little else. Some of the region’s countries are
rich in natural resources that others lack. Inflation is a problem in some
places and not in others. Local knowledge is key.
One of the most interesting markets in the
region is Thailand, and not just because it might be the best way to tap into
the opening up of Burma. Thailand’s stock market has risen by 16pc so far this
year, beating all the other main indices in Asia.
In part that reflects a quicker than expected
recovery from last year’s floods. But it is also a consequence of a raft of
pro-stimulus policies from the country’s populist government, including a 40pc
rise in the minimum wage and a sharp reduction in corporation tax from 30pc to
23pc, with 20pc in the pipeline for next year.
Foreign investment is pouring into Thailand,
with Japanese car makers seeing the country as a safe destination for companies
seeking to escape the high yen and energy shortages following the Tohoku
earthquake.
The government is playing its part, too,
spending heavily on dams and flood defences as well as rail and road projects
to help promote the country as a distribution hub for the region, linking China
with frontier markets such as Cambodia.
Thailand might seem a bit mainstream for
someone weighing up an investment in North Korea, but less adventurous
investors than Jim Rogers probably won’t mind that.
Tom Stevenson
Business & Investment Opportunities
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