Should you invest in Asian stocks or is slowing Chinese growth a reason to stay away from Asia? A look at the Japanese, Taiwanese and South Korean experiences are instructive in considering the Chinese slowdown and where in Asia stocks might be going up.
Japan: Economic Powerhouse to Deflationary Economy
Japan growth was spectacular for decades after the Second World War. Technological advancement along with cheap labor and a managed currency put Japanese products in homes worldwide. Then, as the Japanese labor force aged and demanded higher wages Japan started sending jobs offshore, mostly to Southeast Asia.
Taiwan, Singapore and South Korean had similar experiences. All of these countries had centralized economic planning, used currency manipulation and had the advantage of cheap labor in their growth phases. And all of them were forced to pay higher wages to an aging labor force. The answer for each of these economies has been to stimulate internal spending and loosen the authoritarian grip on their markets. Japan and the rest have evolved into healthy and stable modern economies. China is hesitant to convert to a more liberal and less authoritarian controlled economy for fear that the Communist hierarchy will lose control.
The place where new growth is occurring in Asia is in the Southeast of the continent and the islands offshore. This is the region of ASEAN, the Association of South East Asian Nations. A hint of what is going on there comes from an article in Bloomberg about a commodity rebound in the region.
China may be slowing, but a commodities rebound is under way and the world’s biggest miner knows where the next growth story is building – emerging economies in Southeast Asia.
Combined gross domestic product in the ASEAN-5 nations – Indonesia, Thailand, Malaysia, the Philippines and Vietnam – will rise about a third to $3 trillion in the five years to 2020, fueling commodities-intensive infrastructure projects. Momentum like this across Asia will help maintain and increase commodity demand, BHP Billiton Ltd.’s Chief Executive Officer Andrew Mackenzie said this week.
These are the same nations that are concerned about China’s territorial ambitions in the South China Sea and general dominance in the region. Thus trade among China’s neighbors and excluding China may become a strong feature of the region and a reason to invest in Asian stocks outside of China and centered on the ASEAN nations.
This week President Obama attends to ASEAN summit in Laos, an indication of the importance that the U. S. government places on the region. J. P. Morgan writes about growth opportunities in the ASEAN region.
With a population of more than 600 million and a nominal GDP of $2.31 trillion, ASEAN (the Association of Southeast Asian Nations), made up of Brunei Darussalam, Myanmar, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam, is fast becoming a major economic force in Asia and a driver of global growth. As the economies of neighboring China and India decelerate, and as the U.S. shifts its focus to the East, the region is increasingly becoming a destination for investment.
In spite of challenges, ASEAN’s economic performance continues to outpace the rest of the world. The Asian Development Bank estimates the bloc’s GDP growth at 5.6% in 2014, up from 5.3% in 2013.
Should you invest in Asian stocks in the ASEAN region consider ADRs or funds that focus on this area.