28th May 2013
Asian countries have moved to form their own version of the European Economic Community says Camille Vergara, manager of the GAM Star Emerging Asia Equity, which will boost growth which is already expected to be robust.
In a note issued today, Vergara says the ASEAN countries may now be in a similar position to China some 15 to 20 years ago. She adds: “The current economic development in South East Asia can be likened to the development of China some 15-20 years ago and we anticipate an extended period of faster-than-normal growth in the foreseeable future. The growth also relies on domestic demand rather than just export led growth. To serve the growing demand of a large population base with rising disposable income the region will have to step up investment in infrastructure, and in production capacity across various industries.”
“In a move to become a single trading block by 2015, the ASEAN Economic Community (AEC, similar to the EEC) will create further investment opportunities as there will be free flow of goods, services and skilled labour. ASEAN governments are supporting inter-border infrastructure and M&A, so companies can create economies of scale. M&A activity increased in ASEAN companies over the past year, for example in the food and beverage industry. The challenge for acquirers will be not overpaying, as current prices are in many cases elevated.”
She also points to a big upgrades in infrastructure across the region. She writes: “Thailand, ideally beside its neighbours Laos, Vietnam, Myanmar and Cambodia, as well as China, will embark on a major upgrade of infrastructure in the next five years to improve connectivity by land, sea and air to create and capture growing trade benefits in the region. Thailand’s aim is to be the logistics hub of the Sub Mekong Region, whereas Singapore positions to be the financial and transport hub of the ASEAN. Indonesia and Malaysia are the manufacturing centres and the Philippines is poised to become the business process outsourcing (BPO) centre with its growing call centre industry. This service industry is thriving due to the large, educated, English speaking labour market.”
The note continues: “Thailand, Indonesia and the Philippines (the TIPs) have been outperforming Malaysia and Singapore, driven by robust economic growth and domestic demand. The population of these three markets is 400 million and per capita income is roughly USD 3-4,000, the level when consumers start buying cars or having a mortgage. Meanwhile Singapore and Malaysia, being more export oriented economies, have been more affected by the slowdown of export demand by western economies. Good corporate earnings growth, currency gains and some degree of price earnings ratio rerating have driven the good performance of ASEAN equities and we expect earnings growth to remain strong.”