ASEAN, an untapped goldmine

ASEAN, an untapped goldmine

Communications

Often ignored by Western media and investment funds, the Association of Southeast Asian Nations (ASEAN) is emerging as the world’s fifth largest economy. With ten countries and 663 million inhabitants, the region is a fertile ground for investment opportunities.

The Asia-Pacific region of ASEAN has flown under the radar for a long time. In fact, investment funds have only recently started venturing into these countries, but they do not yet have an extensive track record. What cannot be overlooked is that ASEAN is the world’s fifth largest economy. And according to International Monetary Fund (IMF) projections, this area is expected to contribute 70% to global growth this year, increasing its economic expansion from 3.58% to 4.6%.

But what is ASEAN?

The Association of Southeast Asian Nations is made up of ten countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Vietnam and Thailand. In total, these countries have 663 million inhabitants, a combined GDP of $3.9 trillion and cover 4.5 million square kilometers. Yet perhaps the most striking fact is the median age of the ASEAN population, which is remarkably young at just 30 years, compared to 42 years in Europe.

The year 2020 was undoubtedly a key year for ASEAN, with the signing of the economic agreement to found the Regional Comprehensive Economic Partnership (RCEP). This is a free trade agreement with Australia, China, Japan, Republic of Korea and New Zealand, and has become the largest in the world, accounting for 30% of global GDP.

Staggering projections

According to forecasts by World Economics, Asia’s share of global GDP is likely to grow from approximately 45% to 57% by 2030. This growth would make the region the fourth largest in the world by the end of the decade, only behind the USA. According to ASEAN’s Secretary-General, the Cambodian Kao Kim Hourn, this growth will be particularly boosted by the young population. In fact, around 60% of the total ASEAN population is under 35 years of age and half of them will join the middle class before the end of the decade.

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Investment opportunities 

In light of this landscape, it is only logical to think about potential investment opportunities. Firstly, it is important to note that there is no one-size-fits-all approach for these countries as a whole, since some of them are more industry-heavy while others rely more on tourism. The same goes for income levels, digitalization and education. It is therefore necessary to keep these factors in mind before looking for investment opportunities.

For J.P. Morgan, this region primarily offers four major investment opportunities. The first has to do with the low banking penetration; the second, with the lack of e-commerce; the third, with the strong presence of foreign investors and entrepreneurs; and the fourth, with the decarbonization process, which has not yet taken hold in the region in a considerable way.

In the case of one of the flagship funds that invests in the region—the Fidelity ASEAN Fund—the main opportunities are to be found in the financial sector, which accounts for more than 40% of the portfolio. According to Bill Maldonado, CIO of Eastspring Investments, the main current opportunities are in Vietnam and in the overall economic transformation of the region itself. “Manufacturing capability being built up, the infrastructure being built up, the know-how, the technology. And this is not something that’s going to change overnight,” he argues.

The financial system

Two areas of particular growth in the region appear to be the financial sector and tourism. With regard to the former, the McKinsey Institute estimates that almost 59% of the population in East and South Asia does not use formal or semi-formal financial services. This, combined with the median age of the population and its entry into the middle classes, makes it an appealing opportunity for investors. Furthermore, smartphone penetration verges on or even exceeds 90% in the region, meaning that the role of online banking and fintech could be instrumental.

With a young population and growing incomes, e-commerce would appear to be a sector worth investing in. E-commerce sales in ASEAN surged to $38 billion in 2019—from $5.5 billion in 2015—and estimates put this figure at $150 billion by 2025. In Thailand, the 4.0 initiative has been launched, which is a 20-year strategy to move into a digital economy, while in the Philippines, the central bank has launched its Digital Payments Transformation Roadmap.

ASEAN countries: GDP per capita in current prices from 2018 to 2028 (in usd dollar)

Source: Statista