Growth in South East Asia

Growth in South East Asia 

Multinational companies have long focused on the BRIC countries for potential investment opportunities and growth. Within the group, India and China have consistently attracted attention due to their immensely large labor force and low cost of production. However, the potential in these two countries have slowly started to diminish.

India’s infrastructure has continued to be a hindrance for multinational companies trying to operate in the country. It’s uncertain tax policy and bureaucratic restrictions on businesses are huge roadblocks that prevent current and future investors from investing in the country.

China has also lost its appeal. Wage scales in factories have rapidly increased within the last few years and have made labor production prices less competitive. In addition, labor laws in support of domestic companies have further deterred new business prospects.

 Recent changes have provided for a shift of focus to South East Asian countries. Multinational Corporations have turned to raw numbers and statistics to assess whether the South East Asian nations could provide a new outlet for growth and return on investments.

The Thomson Reuters/Insead Asia Business Index is a survey used to assess the business sentiments in Asia. The survey in March reported an index of 65 from an index of 63 reported in December. An index reading of over 50 concludes an overall positive outlook.

Malaysia and the Philippines reported the most positive readings, each receiving and index score of 100. This is the second time both countries received readings of 100, implicating positive outlooks for future GDP; Whereas, companies in China, Japan and Korea had the least positive indexes, with readings of just 50.

Coutts Bank Chief Investment Officer for Asia and the Middle East, Gary Dugan states, “I think the good news so far this year is just kind of consistency. We have continued to see modest upgrades to GDP forecasts for Malaysia, Philippines and to some extent, Indonesia. People continue to enjoy the same old thing, which is growth that surprises forecasts, companies therefore delivering good earnings numbers which beat expectations.”

According to data compiled by Bain & Co., consumption growth in South East Asia will spur buyouts in the ASEAN countries. Sebastien Lamy, a Singapore based partner at Bain states “The economic outlook for the region is good, compared to other parts of the world, the Asia-Pacific region is still underpenetrated. Especially in Vietnam, Thailand and the Philippines, private equity will be surfing on the wave of the consumer story. The growing middle class is set to push up investments in companies focusing on those areas.”

Furthermore, Hozefa Topiwalla, an ASEAN equity strategist for Morgan Stanley states, “Domestic consumption across most ASEAN countries have been very robust and I think that is the key reason why the domestic businesses are confident.”

Despite the risks of global economic uncertainty taken with any foreign investment, floods of global liquidity in South East Asia have attracted many investors to take a closer look at the countries. Thanks to government driven investments in strong domestic spending and infrastructural improvements, South East Asian economies seem to be doing fairly well. The USD$1.5 trillion economy remains optimistic and will continue to gain momentum.