Alvin Lee, Managing Director of Regional Private Wealth, Maybank
Asia is set to replace North America as the world’s wealthiest region by 2020. China is already the second largest economy after the US, or the largest if we measure it on a purchasing price parity basis. If we look forward to the year 2030, it is expected that four of the largest countries in Asia – China, Japan, India and Indonesia – will be among the 15 largest economies in the world.
The Association of Southeast Asian Nations (ASEAN), which is in the geographical, and arguably commercial, heart of Asia, is well-placed to be a part of this growth story. Several developments will support this, alongside the ASEAN Economic Community (AEC). The AEC will help overcome what is often hailed as ASEAN’s weakness – the diversity in the region – and turn it into strength. With integration, ASEAN’s variety becomes attractive to global investors, combining the capital and skills of its more economically mature member countries, such as Singapore, with the competitive costs and abundant resources of its developing ones, such as Myanmar.
With integration ASEAN’s variety becomes attractive to global investors
There are several advantages to the AEC proposition. Firstly, it creates the third largest labour force in the world (see Fig. 1), behind China and India. ASEAN’s population stands at more than 600 million and it is expected to reach 670 million by 2020. With an estimated 60 percent of the total population of ASEAN under the age of 35, the large workforce is almost certain to attract capital from multinationals looking to tap into this resource.
Secondly, with a combined gross domestic product (GDP) of $2.5trn in 2014, ASEAN collectively has the third-largest GDP in Asia, after China and Japan. ASEAN’s 10 members collectively form the world’s seventh-largest economy, according to figures from the International Monetary Fund. Thirdly, assuming there are no major shocks, annual growth for ASEAN is estimated to average 5.4 percent from 2014 to 2018. In comparison, the projected growth for the EU is around two percent and the US is three percent, according to figures from the United Nations.
It is interesting to note that sovereign funds are also being channelled into ASEAN. No less than 27 percent of Singapore’s direct investment went to ASEAN in 2012, forming the largest component of the country’s investments, based on statistics from the Ministry of Trade and Industry. Foreign revenue generated by the top 1,000 companies in Singapore by revenue has also increased steadily from SGD 149.9bn in 2011 to SGD 223.9bn in 2014, an indication of the robust growth the region is experiencing.
Not only is ASEAN attracting more investment, it is also becoming a launch pad for new companies, accounting for 38 percent of Asia’s market for IPOs. This is in contrast to the decline in the total number of global IPOs, which has decreased from the previous two quarters by 55 percent in the past year, according to stats from Ernst and Young. On a more global scale, the Trans-Pacific Partnership (TPP) is also set to benefit the region, bringing together 12 countries in the Pacific Rim, which collectively will account for 40 percent of the world’s economic output. Within ASEAN, Singapore, Malaysia, Philippines, Vietnam and Brunei are the five founding members of the TPP.
All of this combined sets the stage for immense growth potential in the region. The fast emerging markets of Vietnam, the Philippines and Indonesia are already experiencing growth that has seen millions of people quickly joining the ranks of the consumer middle class.
This rapid expansion of the middle class in ASEAN will spur demand for a wide range of goods and services. In particular, services such as telecommunications, fast-moving consumer goods, healthcare, and banking and finance, which have a high income elasticity of demand.
As these economies develop, it will bring about the entry of corporates and businesses as they look to expand their operations into the region. Supporting their growth and development will be the domestic banks in these markets and those with a strong regional footprint, given that they are well-placed to follow their clients and support them as they regionalise.
This is in line with the ASEAN Financial Integration Framework (AFIF), a commitment by the ASEAN Central Bank Governors towards helping the region grow, with the vision of a more integrated financial region by 2020. Among the key pillars in AFIF are banking integration and capital markets integration, further signalling the opportunities available for qualified ASEAN banks which will enjoy greater market access and operational flexibility.
As investors, the key is then about how to tap into and capitalise on these opportunities. Investors should assess their bank and determine if they have the capability to do so, particularly in terms of their coverage model, cross-border capabilities, market knowledge and the talent proposition.
Therefore, the importance of having a partner with the local network and context to access these opportunities is even more pertinent. In this aspect, it would seem that the regional banks in Asia have more of an advantage at the moment, given their footprint and understanding of the region. Investors should ideally look out for a bank that has a presence in all 10 ASEAN markets, to ensure that the bank has a holistic view of the entire region, with the capability to connect you to opportunities as they arise.
Diversity and expansion
Cross-border capabilities are equally important. For us at Maybank Private Wealth, we leverage on Singapore as the wealth management hub for the region and source for solutions both from within Maybank’s wide network and also third-party providers. That way, our clients get to take advantage of opportunities even if a particular investment is unavailable in one country, as they can be served out of the country where it is available.
The very same diversity that provides the region with these opportunities also means that there is the need for local market knowledge. Banks must be able to provide their clients with credible market information and strong research capabilities to make the appropriate recommendations. With a strong foundation of skills and knowledge, banks will be able to accelerate the opportunities available for clients. Naturally, it would also be beneficial if the bank you are working with has already invested the time to learn and understand the market and make the connections, instead of a new entrant which may not have the same advantage as a more established player. This is something we are seeing at Maybank, where our deep-rooted presence in all 10 ASEAN markets has put us in a favourable position with the credibility and connections to capture market opportunities in the region.
Lastly, having the appropriate talent will determine how well your needs are met and that you reach your desired investment goals. Some of the things to consider include the level of attention the bank is able to give you and their selling philosophy – whether it is simply product-pushing or truly selling based on your needs and risk-appetite. Having a relationship manager that is familiar also helps, given that over time, they learn about your preferences and can better anticipate your needs. The last thing anyone would want is to end up having to deal with a situation where there is high staff turnover, which could leave you feeling unsettled about who is managing your portfolio.
It is truly an exciting time for ASEAN. Notwithstanding their distinct cultures, histories, and languages, there is a strong commitment from the 10 member states to their shared focus on jobs and prosperity. The affluence of the region is growing and is set to be the next frontier of consumer growth. While it will take some time for the region to truly become a seamless regional market, there are already several positive signs and we believe that there are great opportunities in ASEAN, now and well into the future.