The larger economies of the region are more domestically driven
Irrespective of shape of recovery, Emerging Asia and the ASEAN region is expected to outperform the rest of the world
Be engaged and ready for when Southeast Asia's recovery takes hold
For those with a medium to longer term view, Southeast Asia will continue to offer opportunities, COVID19 or not.
Southeast Asia was one of the fastest growing regions in the world before the covid 19 crisis hit us. Now with the global economy hitting a recession, or according to some, hitting a depression, the outlook for business and investment opportunities in Southeast Asia are being questioned. Will COVID 19 end Southeast Asia's growth prospects?
True, Southeast Asia's economies, all are facing recessions or sharp slowdowns, like every other country in the world. But how will they survive the next three months to 2 years? If lockdowns become the norm and the world gets hit by wave after wave of coronavirus. It will be tough, some countries may even face some big social risks as people get unhappy that their government's can't provide for their needs.
Here are the top 3 reasons why Southeast should be on your radar as an investor, exporter, MNC and policy maker.
1. Most of Southeast Asia remains domestically driven
Domestic consumption, meaning people buying stuff, cars, homes, food etc drive the economies of most of the larger ASEAN economies, especially Philippines, Indonesia, and Thailand. While the lock-downs will drastically impact this demand, (the demand shock many talk about), the recovery also can take faster with the right policies. Longer term lockdowns, while negative of course, but the domestic nature of the economies mean, they can withstand the shocks.
If you look at the chart above, ASEAN5 - which is Indonesia, Philippines, Thailand, Malaysia, and Singapore is set to rebound strongly. Let's say its not V and U or W or whatever the shape, the growth drivers remain in tact. Vietnam stands out as one ASEAN economy that will clock robust growth in even 2020!
2. Southeast Asia is a clear beneficiary of the push to diversify supply chains
MNCs have been relocating their manufacturing way before Donanld Trump, COVID or Geopolitical risks started being a focus. The key driver was costs. Rising labor costs, partly policy driven and partly market driven, led some companies to explore alternate destinations. Some called in China+ strategy.
Fast forward to today, COVID19, trade tensions, geopolitics, and business risk management practices, make it imperative for most companies to either relocate or at minimum diversify their supply chains.
Vietnam has been a clear winner here as well. Companies looked to Vietnam from around 2013-14 as an alternative to China and that trend has only accelerated.
But not all of ASEAN is created equal. You will need to do your homework about risks and rewards. Red carpets maybe laid out now, but risks lurk beneath, COVID has not miraculously changed the investment climate.
3. Southeast has been politically stable and relative to other EMs and FMs risk remain lower
Southeast Asia for the most part escaped the social unrest that rocked parts of the world in 2019. Part of the reason being the region continued to grow at a robust clip allowing people to be better off. Tighter social controls likely played a role as well. The pandemic has an uncanny ability to expose weaknesses in societies, economies and political leaders. Here, Southeast Asia is not immune. Some leaders have used the pandemic and ensuing emergency to consolidate power, others to introduce more surveillance and by and large most governments have been sensitive to criticism. The key to stability will be how responsive governments are to people's needs, especially if the slowdown and social economic issues such as poverty, hunger worsen. Government competence, capacity, and ability to navigate the international funding and donor communities will also help.