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The Right Time To Invest In ASEAN

With Europe muddling through political uncertainty and the US moving into a period of deglobalisation, it is now ASEAN’s turn to shine – here’s why you should be a part of it, according to Chief Investment Officer Lee Kai Yang of RHB Asset Management. Written by Xiou Ann Lim

Asian countries are fostering stronger integration as well as trade ties amongst each other at a time when Europe is dealing with uncertainties surrounding the EU and the US has taken a protectionist stance. As Asia moves into position for further economic progress with China at the helm, ASEAN member countries are set to benefit the most from these strengthened partnerships – which makes it an opportune time to invest in ASEAN.

RHB Asset Management’s Chief Investment Officer – Lee Kai Yang – shares why ASEAN’s the right place with the right resources and how it is now ripe for investment.

The right resources

One of ASEAN’s most valuable resources is its people. Compared to the more developed economies in Asia – which have rapidly ageing populations, shrinking workforces, and higher dependency ratios – countries such as Indonesia, Malaysia, the Philippines, and Vietnam boast robust young populations that drive the economy as they join the workforce each year.

*Source: United Nations, Department of Economic and Social Affairs, Population Division (2015).
World Population Prospects: The 2015 Revision.

Apart from that, the middle class segment in the ASEAN region is the fastest-growing segment – with over 50 million households expected to join the middle class from 2010 to 2025. They will be driving consumption growth in the next decade, which will also help to boost the respective country’s economy.

The right place

China is transforming the ASEAN region faster than ever – as it moves into a consumption-based economy, there is a decided manufacturing shift from China, where wages are now double that of Vietnam’s workforce.

Note: Planned wage increase in 2017 in brackets
*Source: JetroSurvey, December 2016

This is why Japanese, Korean, and Taiwanese manufacturers are looking to move production to countries with a lower cost base. Even Chinese companies are thinking of relocating their manufacturing facilities elsewhere because they’re no longer as competitive.

Countries such as Vietnam, Cambodia, and Indonesia not only have a lower cost base due to low labour costs – they are also in close geographical proximity to these developed markets, which makes for convenient management of production facilities as well as employees. “They are literally in China’s backyard,” Lee points out.

The right time

The US was previously the facilitator of global trade, but the direction is changing now with Trump at the helm. Prior to and immediately after Trump’s victory, Asia-Pacific consistently outperformed all other markets.

Despite the initial excitement that led investors to gravitate towards developed markets such as the US and Europe, the tables have turned in the three months following Trump’s inauguration – as emerging markets in the ASEAN region are now back in favour.

Intraregional trade has also increased among ASEAN member countries, with China becoming the dominant trading partner. “If ASEAN can develop a good ecosystem that enables its member countries to trade amongst themselves, that could foster resilience against the US’s protectionist stance,” Lee observes.

*Source: Bloomberg, 12 April 2017

Apart from bolstering the trade and manufacturing sectors, China is also investing heavily in infrastructure and real estate around the region. “Ten years ago, investors were keen to invest in China and China did not have to look beyond their borders to invest – but they’re looking outwards now,” says Lee.

Malaysia, Laos, Indonesia, and Myanmar have already announced their collaboration with China on some infrastructure projects. Not only will China be helping to fund some of them, it will also be sharing its expertise and be involved in their construction.

The bottom line

There is a lot of potential for growth in the ASEAN region – so much so that even China is investing heavily in it. Despite the occasional volatility and economic slowdown, it is still the fastest-growing region when compared to the rest of the world.

This article was originally published by WEALTH, Asia’s marketplace for investors.

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