19 April 2023
As we enter the post-COVID era, many investors are looking towards emerging markets. This has prompted a significant focus on Southeast Asia, where there appear to be several exciting opportunities. In addition, substantial changes during the COVID pandemic have seen many Southeast Asiacountries come out of that period much stronger.
The Regional Comprehensive Economic Partnership (RCEP) is a progressive free-trade agreement which incorporates a range of countries in Southeast Asia. The RCEP accounts for 8% of global exports while receiving 10% of global imports.As part of the APAC region, set to become an economic powerhouse, the RCEP will be the most prominent global single market by 2030.
To put this into perspective, the International Monetary Fund forecasts average global economic growth of around 2.7% for 2023. Interestingly, the Asian Development Bank is forecasting average economic growth of 4.7% in Southeast Asia for the same period. While some of the expected growth will come from increased internal APAC market trade, the Southeast Asia area is attracting tremendous interest from international companies.
Unsurprisingly, both US and Chinese companies are set to increase their exposure to Southeast Asia markets. Conscious of rising costs, they are seeking to take advantage of lower manufacturing expenses in areas such as Vietnam and Thailand. Interestingly, a recent report by HSBC also found that a staggering 90% of companies in France, Germany, India and the UK are looking to increase their presence there. The introduction of free trade zones, tax incentives, and improved infrastructure are proving to be a trade magnet!
As mentioned above, economic growth across the SoutheastAsian market is expected to be significantly higher than the global average. Indeed, HSBC believes that growth across Thailand, Singapore, Indonesia, Philippines, Malaysia and Vietnam will be between 3.2% and 7.6% in 2023. Political stability and a highly educated and enthusiastic young workforce are some of the additional factors making the Southeast Asia markets so attractive.
Specific sectors expected to do well in the region include technology, e-commerce, FinTech, renewable energy, infrastructure, healthcare and manufacturing. To those who have yet to research the area in any detail, this may come as a surprise. However, the seeds of success were planted many years ago, with the likes of Vietnam only now benefiting from a long-term focus on the new digital world.
To inject a degree of balance into this article, we must appreciate the potential risks of investing in the region. These include:-
• Political risk
Thankfully, the historical weight of these potential risks has reduced significantly in recent times. Therefore, it is no surprise that investors are also scrambling to increase their exposure.
While part of the APAC region, many see Southeast Asia as the short to medium term economic engine. In reality, the recent upturn in economic activity and prospects going forward are mainly a result of long-term policies introduced by the various governments. However, there is also a degree of benefit from the COVID pandemic, relatively cheap manufacturing costs compared to other countries.
We live in a world where confidence breeds confidence, and many are looking to the future of the Southeast Asian trading partnership with great optimism.Back to News