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THE INVESTOR
ANALYSIS
I
n 1967, Indonesia, Malaysia, the
Philippines, Singapore andThailand
formed the Association of Southeast
Asian Nations, with a view to
promoting economic growth, social
progress and regional stability. Nearly 50
years later the group has grown to include
Brunei,Vietnam, Laos, Myanmar (Burma)
and Cambodia. Known as ASEAN, it now has
a collective population of more than 600
million people and a combined GDP of
almost $2.5 trillion
1
.
If the region were a single entity, it
would rank as the seventh-largest economy
in the world, behind China, the US, Japan,
Germany, France and the UK
2
. But it is far
from a single entity. Culturally, geographically
and economically, there are huge variations.
Singapore is an advanced nation, with
infrastructure to rival any in the developed
world. Indonesia’s GDP is greater than that
of Thailand and Malaysia combined, and it’s
almost 80 times larger than Laos
3
.
‘We are looking at a huge part of the world,
where each country has its own particular
economic advantages and disadvantages,’ says
HughYoung,managing director ofAberdeen
Asset Management inAsia and investment
manager for the St. James’s Place Far East fund.
From 2000 to 2010, most of the area was
overlooked by investors, who were busy
chasing growth in neighbouring China, India
andAustralia. In recent times, however, the
situation has changed.
‘ASEAN is the United States’ third-
largest Asian trading partner and the largest
Asian destination for direct investment.
At current growth rates,ASEAN should
become the fourth-largest market after the
EU, US and China by 2030, supported by
an increasingly well-educated workforce,
abundant natural resources and a favourable
geographic location,’ says US investment
bank J.P. Morgan
4
.
Against this backdrop, stock markets in
the region were among the best performers
in 2014, as ASEAN economies delivered
strong GDP growth, driven increasingly by
domestic demand.
‘In 2014, investors derived comfort from
ASEAN being more domestically focused
and less export-dependent than North
Asia.ASEAN member countries are also
far enough away from China to be spared
scepticism among some investors about the
mainland’s ability to engineer an economic
rebalancing without the wheels coming off,’
says Markus Rosgen, head of Asia-Pacific
equity strategy at US banking group Citi.
Interest inASEAN was particularly
noteworthy as the region’s economy
has traditionally been associated with
commodities, which fell almost across the
board in 2014. In times gone by, this would
have brought ASEAN to its knees.These
days, however, the
region is diversifying
into other sectors
and benefiting from
a steady increase in
consumer demand.
‘A growing middle
class is driving demand
for a whole range of
products and services,
such as white goods,
automobiles and banking,’ says FabianWong,
a partner at consultancy EY.
Nonetheless, as even the most fervent
ASEAN supporters would acknowledge,
the region has its challenges, not least
because it is made up of a number of
different economies.
Although Singapore is only a tiny island
with a population of just over five million
and no natural resources of its own, the
country has become a regional hub, trusted
and respected across theWestern world.
‘Singapore has built an exceptionally
efficient apparatus of institutions that work
on world-class lines in areas such as health,
education, law and regulation.As such, it
has become highly attractive as a regional
HQ for a range of value-added industries,
such as financial services, biotech and
petrochemicals. It’s a phenomenal success
story,’ saysYoung.
Despite, or perhaps because of, its success
economic growth has been less stellar
here than in other, less developed parts
of ASEAN. GDP growth inVietnam and
Cambodia, for example, hovered around 7%
last year; while in Singapore, it was a more
pedestrian 2.9%
5
.
It is easy to be seduced by heady growth
figures but regional experts suggest that
close scrutiny is required on both a macro-
and micro-economic level.There are clear
signs of progress, but political unrest
remains a concern in
several countries and
corruption is rife.
‘You need to
look at the level of
corruption before
investing inASEAN.
Check whether
the government is
cleaning up its act,
see whether power
is being handed down from one generation
to another, assess the legal framework and
find out if countries are genuinely open for
business,’ saysWong.
Thailand is an intriguing example.
‘Thailand is very well placed to benefit from
the growth elsewhere in the region, but
its well-publicised political problems have
been not so much swept as stamped under
the carpet by the military regime. Divisions
clearly remain and there is lots of potential
for things to go wrong,’ explainsYoung.
For the first decade
of this century,
most of this area
was overlooked
by investors
ASEAN ECONOMIES
