What regions across the world would make a good place for investors’ money? For investors, it could be time to consider South East Asia.
Is it time for investors to look at South East Asia?
I have been taking a gander across the world. What regions are set to flourish? There are three factors that I am considering and they must all be in place.
The first relates to how they have coped with Covid-19. Some countries have managed the crisis better than others. Countries that fall into this box include the Nordics — Sweden less so than it’s neighbours. It seems that there is something in the cultures of these countries that have made them especially effective at dealing with this crisis. Other studies have shown that there are especially high levels of trust in the region, including trust of the government. I suspect that’s the reason for their relative success in dealing with Covid. Other countries include Germany, New Zealand, Australia and most of South East Asia.
I think two factors have come into play in South East Asia. Firstly there was the regions experience with SARS, secondly was its proximity to China. I think that in the West, we were slow to take Covid seriously in part because it was seen as problem in China — a lockdown in Wuhan seemed so distant. Instead, in South East Asia, governments, businesses and people were all much quicker to understand the implications. The SARS experience meant they also understood the importance of contact tracing.
Next relates to economic potential. I am worried about the Eurozone, things are looking messy there. Germany is too reliant on its car industry, which is about to face a multiple of disruptive threats and I have long thought Australia’s housing market looks vulnerable too. I don’t want to overstate these remarks. I think that the Nordics, Germany, Australia and New Zealand all have economic potential but the opportunity for South East Asia is vast.
My third factor relates to embracing modern technology. There is an important point about AI related technologies that is not commonly understood — it entails much lower barriers to entry. Furthermore, in some respects, the West is at a disadvantage — the economies are structured in a way that makes it harder for them to embrace a new digital way.
PwC recently projected that AI will boost the global economy by $15.7trillion a year by 2030. This represents a major opportunity.
Certain countries across South East Asia have an exceptionally strong tech start-up scene, including Taiwan, South Korea, Singapore and Indonesia. Hong Kong is strong in this respect too, but I am deeply concerned about sociological issues there.
I was tempted to include India in this list — it is emerging as a major world power in IT and digital automation. However, I am seriously worried about the way Covid-19 infections are apparently still rising in India. In any case, the economy faces strong economic headwinds.
More thoughts about the economy
So much for my thinking. What do economists think?
Gareth Leather, Senior Asia Economist, at Capital Economics recently said: “Most countries in Asia came into the crisis in good economic shape. Debt levels were relatively low, which has meant that most countries have been able to loosen fiscal policy aggressively.”
“Since most countries in Asia are big net oil importers, the collapse in global oil prices since the start of the year will also boost prospects, especially now that oil consumption is rebounding as economies start to get back on their feet.“
And “whereas most countries in Asia are likely to be only 2-4 per cent smaller by the end of 2022, the gap in much of the rest of the world is likely to be bigger. India is the exception, as we fear containment measures will have to remain in place longer and fiscal support has also been inadequate.”
From that relative position of strength, (I mean relative to the rest of the world) I expect the region to grasp the opportunity created by AI and other so called fourth industrial revolution technologies and thrive.
I would have said that the safest way to invest in the regions is via funds. For example, Fidelity Asia W, and Stewart Investors Asia Pacific Leaders B. These funds also provide exposure to Australia and New Zealand.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees