Before the pandemic, recovery from the recent global financial crisis was driven by Asia, in particular China. Deeper integration of China into the world economy and further critical reform is essential to continuing that trend. The IMF has forecast that the Asian region will become the largest contributor to the world’s economic momentum – not just by the rate but also by the size – within the next couple of years.
Furthermore, in a world defined by increased political tensions, the ASEAN group is likely to be more coordinated. Geopolitical issues such as Brexit, the US-China technology rivalry and trade tensions continue to affect many Western economies. However, various countries with the ASEAN region are well-positioned to navigate these issues and benefit from the ongoing turmoil, most notable of which is supply chain re-orientation towards the south.
The major drivers of structural opportunities for investors in ASEAN over the next few years include:
1. Financial inclusion
The ability for individuals and businesses to access affordable financial services is key for sustainable growth. There has been good progress across the region, although the level of inclusion remains low by developed world standards. In India, for example, the number of deposit accounts has grown from 35% of the adult population in 2011 to 80% in 2017, thanks to the government’s financial inclusion and a 'banking for all' programme. Less encouragingly, many accounts are inactive or have zero balances.
More broadly, this is an opportunity to benefit from the earnings growth that will be experienced by companies that can offer a range of financial products and services over time, starting with basic functionality (deposits, loans, transfer services etc.) all the way to a more progressive proposition, which includes insurance and hedge funds.
2. Domestic consumption and service
The evolving domestic consumption and service trend in the ASEAN region has resulted in significant benefits for many businesses. On a selective basis, risk-reward has improved thanks to lower equity valuation premiums despite solid earnings growth, offering good opportunities for investors. This includes businesses in the technology, e-finance, logistics and consumer discretionary sectors. Other sectors that are likely to benefit include education, leisure and travel, and entertainment and digital such as gaming, videos, etc.
Given that ASEAN’s economic growth will be increasingly driven by domestic factors rather than external trade, internal consumption will likely remain a boon in the near to medium term.
3. R&D and manufacturing in ASEAN
ASEAN is well-positioned to be the prime beneficiary of the volatile trade tensions and supply chain reconfiguration.
Manufacturing and production is gradually moving inland and towards Southeast Asia, with Foreign Direct Investments (FDI) flowing into countries like Thailand, Indonesia, Malaysia, Philippines, Cambodia and Vietnam.
Vietnam in particular has an emerging manufacturing and exports sector that is yet to flourish at a larger scale. However, it has a GDP per capita similar to China’s more than 10 years ago, and is growing at 7% a year. The potential of such centres is one of the most exciting in ASEAN, as they offer new markets for rising consumption and stronger trade related opportunities for investors.
ASEAN’s rise is also empowered by an emerging technology economy, which is seeing investments in areas such as research and development (R&D) activities and e-commerce including fintech. Apple has recently established its first Indonesian R&D facility; Dyson has opened a technology centre in Singapore; Nissan is starting an R&D facility in Thailand; and Samsung is building an R&D centre for mobile phones in Vietnam. Google is moving its Pixel smartphones production out of China to Vietnam to avoid higher manufacturing costs and build a cheaper supply chain in Southeast Asia.
These initiatives will be further boosted by China’s 'Belt and Road' initiative which will boost infrastructure and connectivity across the region.
4. Infrastructure and agriculture
Infrastructure is a major consideration for the ASEAN region. It is estimated that the developing parts of Asia will need to invest $1.7 trillion a year until 2030 in infrastructure if it is to maintain its growth momentum sustainably. Currently, it is investing an estimated $880 billion a year, leaving an investment gap of around 2.5% of projected GDP for the next few years, based on United Nations and Asian Development Bank sources. Taking China – which has been investing in infrastructure for the last 20 years – out of this equation, the gap widens to 5%. This represents an investment opportunity at multiple levels, including airports, highways, ports, power systems, transit systems and telecommunications.
A key element will be a regulatory framework to make infrastructure more attractive to private investors and to generate a pipeline of projects for public-private partnerships.
5. Healthcare and ageing
As well as being home to some of the youngest populations, the Asia Pacific region is also the fastest-ageing region in the world, with some of the oldest societies.
It is currently home to around 550 million people aged 60 or above, just over half of the world’s total senior population. This is expected to increase to around 1.3 billion people aged over 60 by 2050. While Japan is currently a significant proportion of this demographic (where 27% of the population is aged over 60), China is ageing rapidly. At the moment, 17% of the country’s population is aged over 60 and by 2050, this will climb to 35%.
Markets will therefore move from a period where they have benefited from the 'demographic dividend' to one where they face a 'demographic tax' burden. A direct outcome of this will be demand for elderly healthcare and a framework to support this. For investors, there are two complementary opportunities. Not only is per capita spend growing at a rate higher than economic growth in various parts of ASEAN (thus creating a large healthcare market) but in many countries, government investment in healthcare is inadequate to keep up with demand, thus creating attractive private sector investment opportunities.
What does the future hold?
ASEAN is an environment ripe for differentiation and targeted opportunities.
The shift towards floating exchange rates, less reliance on offshore debt, developing central bank credibility, and inflation targeting regimes, creates a strong foundation for investment opportunities in ASEAN.
However, it requires the ability to embrace short-term macro setbacks and higher levels of volatility, but the opportunity created by these five major sub-themes and the far-reaching economic changes this brings, is significant.
Thus, ASEAN cross border listings, for example, are highly attractive as they allow investees and investors to widen their funding pool while accessing expertise and specialties which could push business models and commercial priorities to a higher level. Cross border involvements can be deemed as companies that trade on the stock exchange of their home country and also on a stock exchange in another country, or more. A Cross Border Listing gives rise to the possibility of arbitrage opportunities, as identical assets are trading in two different markets, enable spread of not just risks, but also marketing presence, expanding sales channels, greater consumer visibility as well as creation of local supply chains to take advantage of host governments’ financial incentives and FDI programs.
Skylight Group targets clients and businesses that are robust throughout ASEAN who are seeking strategic capital and commercial expertise to expand their business or scale their operations. Clients come from various industries and most generally need funds to expand, which can be timely and for some, critical in ensuring their business growth by capturing nascent opportunities. However, raising funds is not an easy process as it requires detailed legal, tax and audit, financial requirements and long list of preparation elements.
As the engines of economic growth and development, small to medium corporations need friendly parties who are able to realize their potential to expand further. This is where Skylight Group fits in. We are able to fill this role, ensuring deserving prospects are able to flex their financial and operational muscle to expand in a practical and timely manner. As Skylight Group focuses across ASEAN, with our presence in Malaysia, Singapore and Hong Kong positions the company to serve as the hub for regional and global multinational companies. Comprising 11 countries to date; ASEAN has the world’s third-largest population of more than 600 million people which makes up 9% of the world’s population. While also being known for diversity, ASEAN has created varied and broad business opportunities. OUr depth and breadth have made ASEAN a desirable place for businesses seeking access to the region’s rising consumer base and accelerating per capita income.
With a projected GDP of US$4 trillion by 2022, a rapidly growing middle-class as well as its active consumers, ASEAN has been recognized as one of the world’s top economies. According to OECD Development Centre, the growing number in ASEAN’s middle class is expected to increase more than double, from 135 million consisting 24% of ASEAN’s population, to 334 million consisting 51% of the population by 2030. Also, ASEAN’s consumer market is presently at US$1.2 trillion, which makes a good pool for any business to enter and spur growth.
ASEAN’s rapid economic growth, young population and tech-savvy consumers have propelled the region to grow as an attractive investment destination for both multinationals and individual investors. As evidenced by the United Nations Conference on Trade and Development (UNCTAD) report, ASEAN’s foreign direct investment (FDI) inflows have risen by 5% with a record US$156 billion that were mainly driven by strong investment in Singapore, Indonesia and Vietnam which took up more than 80% of the inflows.
Despite global headwinds, foreign investors continue to flock into ASEAN region. ASEAN’s growing population, huge labour force and growing affluence along with the governments’ commitment in supporting economic development will lead to opportunities in various areas including next generation manufacturing, infrastructure, consumer and technology.