ASEAN growth potential

The South-East Asian region has forged ahead to grow at a robust pace in recent years. With a combined population base of 573 million people, the region’s economies have vast growth prospects given their strong manufacturing base, growing savings rates, favourable demographics and large consumer market. In addition, the South-East Asian region is strategically located between the emerging giants of China and India.

Grouped together under the Association of South-East Asian Nations (ASEAN) comprising Singapore, Indonesia, Thailand, Philippines, Malaysia, Myanmar, Vietnam, Laos, Brunei and Cambodia, ASEAN is among the fastest growing regions in the world with nominal Gross Domestic Product (GDP) growth averaging 9% annually since 2000. In per capita GDP terms, ASEAN residents have enjoyed a nominal growth of 6.8% per annum over the past six years, exceeding the average global per capita GDP growth of 5.4% per annum over the same period.

Factors contributing to ASEAN’s economic growth

There are several factors contributing to the success of ASEAN economies.

First, these economies have benefited from significant investments from Japanese, European and American multinational corporations in the past 25 years. As a result, the ASEAN economies have developed into globally competitive manufacturers of electronics, machinery, chemical, textiles and clothing products.
Second, exports, which account for 63% of the region’s combined GDP in 2006, have been a major source of growth for the ASEAN economies. Singapore and Malaysia are among the most export-driven economies with exports contributing 206% and 125% to their GDPs respectively. ASEAN’s export prowess is attributable to the relatively low cost of labour, competitive currencies and high skills base which have enabled ASEAN exporters to move up the value-added chain in manufacturing.

Third, ASEAN nations have benefited from increased trading activities with China. Total trade between the six largest ASEAN nations and China rose sharply from 5.2% of GDP in 2000 to 14.5% of GDP in 2006. The Chinese market has also overtaken the U.S. market as the final destination for Asia’s electronics exports in recent years. Lastly, thanks to high household savings, ASEAN economies enjoy high national savings rates with the savings to GDP ratio ranging from 26.6% to 46.2%.

Growth prospects for ASEAN

The total value of ASEAN’s GDP is estimated at US$1 trillion and accounts for about 11% of the Far-East region’s aggregate nominal GDP in 2006. This is a commendable achievement given the large contributions from the region’s economic giants of China, Japan, Taiwan and Korea.

ASEAN has excellent opportunities for further economic growth given the relatively low base of the region’s per capita income, favourable demographics and large and growing population, which exceeds a quarter of the Far-East region’s combined population. In addition, the relatively low ratio of domestic demand to GDP coupled with high savings rates suggests that consumer spending in ASEAN is poised to grow rapidly in tandem with high disposable incomes and robust economic growth in the years ahead. GDP growth for ASEAN economies is expected to range from 4.5% to 8.4% in 2007/2008.

Propelled by a booming property market and construction of two key integrated resorts, the region’s most developed economy Singapore is expected to enjoy resilient GDP growth of about 6% in 2007/2008. Across the causeway, Malaysia’s GDP growth is projected to sustain at 5.8% to 6.0% in 2007/2008 on the back of fiscal stimulus from the 9th Malaysian Plan and robust consumer spending. Indonesia’s projected growth of 5.6% to 6% in 2007/2008 is expected to be supported by increased public and private expenditures in an environment of declining interest rates. Resilient domestic demand will help the Thai economy to grow at 4.5% to 4.8% in 2007/2008. Driven by stronger industrial expansion, buoyant consumer spending and investment, Vietnam's GDP growth is set to expand at above 8% in 2007/2008.
ASEAN currencies are underpinned by strong trade surpluses, manageable inflationary pressures and sustained economic growth. The Thai baht has outperformed its South-East Asian peers with a year-to-date gain of 9.9% against the U.S. dollar. Other ASEAN currencies such as the Singapore dollar are supported by stable inflationary pressures and resilient economic growth.

Outlook for ASEAN stockmarkets

In the past four years, ASEAN equity markets have trended up following a rebound in global economic growth and the end of the SARS epidemic in 2003. From 2004 to 31 August 2007, the Vietnam, Indonesia and Philippines markets registered superb total returns of 447%, 217.2% and 133.3% respectively. The Indonesian and Vietnam stockmarkets have continued to outperform this year with returns of about 21% respectively up to 31 August 2007.

Supported by reasonable valuations, stable or declining interest rates and sustained earnings growth amidst an environment of high domestic liquidity, the ASEAN markets offer attractive returns for medium-to long-term investors.