SE Asian economies have plowed ahead, while the rest of the world has been mired in uncertainty. With China looking less and less attractive and Western countries currently on the verge of tipping back into recession, SE Asia is becoming a sort of safe haven for intrepid investors, willing to invest in emerging markets. Will 2013 bring more good news, or will the world’s troubles finally catch up with the region?
Both the Philippines and Thailand are currently 30 percent up through the year. The two countries have long been plagued by political instability, but recent improvements in governance seem to be paying off, as investors flock to the two countries. Both Thailand and the Philippines are set to record growth rates in excess of 7%. Indonesia and Singapore are both on track to close well above 10 percent for the year. Malaysia has been home to a booming IPO market, with several multi-billion dollar IPOs having been launched this year.
Still, many observers are confident that SE Asia will continue to grow. The OECD expects SE Asia to grow by a robust 5.5% percent over the next five years. The OECD’s think-tank, based in Paris, is confident that the economies of South East Asia will show resilience, even in the face of a slow down in China. Buoyed by rising consumer spending and a burgeoning middle class, there are hopes that SE Asia can reduce its reliance on Western markets and experts. If so, the region could become a booming investment hot spot, even as the rest of the world’s markets grow less certain.
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Meanwhile, private equity firm KKR & Co. L.P. (NYSE:KKR) supports this assessment. The private equity firm believes that rising consumer spending will spur strong growth in consumer companies targeting middle and upper middle class consumers across the region. KKR & Co. L.P. (NYSE:KKR) is investing mostly in education, health care, retail, and other companies that will be able to tap into the regions growing amount of discretionary income. The company now holds over 1 billion dollars in investments across the region and sees SE Asia as a way to maintain strong returns in the face of a growing economy.
Still, many SE Asian nations are heavily dependent on exports. Certain countries, such as the Philippines and Indonesia, are less reliant on exports; but Singapore, Malaysia, and Thailand all rely on exports for a major portion of their GDP. While the region’s middle class is growing, many middle class jobs, such as high-tech manufacturing, rely on exports. A decline in exports will undoubtedly hurt middle and upper middle class workers, which could curtail local demand.
Meanwhile, many national governments are coming under increasing social pressure, as populations continue to grow more assertive. Fueled by social media and increased education, many people are beginning to demand more of their governments. Both Singapore and Malaysia’s ruling parties suffered in recent elections. There is even a risk that Malaysia’s Barisan Nasional will be swept from rule in a coming election that must be held by June 2013. Meanwhile Indonesia has been hit by wide spread protests demanding better working conditions and pay.
SE Asia may offer an opportunity for investors to ride out a mild recession. In the long run, however, if the world’s economy suffered a prolonged and severe contraction, S.E. Asia will likely be hit hard. Certain countries, such as Singapore and Malaysia, that are dependent on exports will be especially vulnerable to a global recession.