By Hugo Brennan, Verisk Maplecroft
When the Association of Southeast Asian Nations (ASEAN) launches its economic integration project in December this year, it could provide the region with the impetus to become a key emerging market powerhouse. However, the 10 country grouping needs to overcome several significant hurdles if the proposed ASEAN Economic Community (AEC) is to succeed in freeing up trade and commerce between member states.
Chief among these is ASEAN’s institutional weakness, which is hampering efforts to bring together diverging national interests and counteract economic protectionist sentiment in key members, such as Indonesia. Many countries in the bloc also face difficult political realities on the domestic front which have the potential to divert attention away from the goal of integration. The success of the AEC will hinge on these factors, but whether it prospers or flounders, foreign businesses in the region will face a changing investment landscape that they need to be prepared for. Read more
For Tony Fernandes, CEO of AirAsia, the recent fall in the price of oil was an early Christmas present. By the end of the day last week that the airline boss had taken to twitter to express his delight, the price of Brent crude had fallen further to $69.78 a barrel, its lowest price in four years.
Fernandes’ enthusiasm can be easily understood. Airlines spend more than 30 per cent of their operating costs on fuel: the oil price fall means higher profits for the industry, which can now lower fares to attract more customers.
Stock market investors have also been buoyant toward airlines. US airlines have seen their stocks surge over the past two months, while China’s three largest airline companies gained over 10% last week. Meanwhile, airlines in the Asia-Pacific have been reported to be waiting for oil prices to fall more before “hedging” their fuel needs for the next year in an attempt to capitalise on the price slide. Read more
In spite of Mikhail Gorbachev’s warning this month that the world is on the brink of a new Cold War, it is Asia that we should be worrying about, says former Australian Prime Minister Kevin Rudd. The region is home to seven flashpoints which, if they erupt, could end the greatest economic growth story of the 21st century.
“We face this remarkable set of circumstances where global growth will be driven from Asia,” Rudd told beyondbrics in a recent interview in Dubai.“But Asia from a political perspective is a potentially unstable region. So the world [should have] a deep interest in not just the future growth trajectory, but also the political and security circumstances which underpin that equation.” Read more
With China’s economy slowing, Japanese companies looking for an alternative to China due to political friction with Tokyo’s larger neighbour and a host of other factors, the Association of Southeast Asian Nations (Asean) has become flavour of the year for some portfolio investors and many companies.
If Asean were a country, the collective gross domestic product of its 10 members – from Myanmar on its western fringe to the Philippines at its easternmost point – would make it the world’s seventh largest economy, ahead of California. With combined gross domestic product of $2.4tn, its economies collectively were 25 per cent larger than that of India in 2013. Read more
The dream of an “Asean car” was first floated, in broad terms, by former prime minister of Malaysia, Mahathir Mohamad, when he spearheaded the creation of Proton in the 1980s. The idea was to form a national Malaysian car company that could be exported to Southeast Asia and beyond.
That didn’t quite work. Proton failed to gain traction much beyond its home market of Malaysia, although it did see some success as a low-priced, competently engineered vehicle in Britain for a time, thanks to the provision of engines by Mitsubishi of Japan.
Now, the idea has resurfaced. Najib Razak, current Malaysian prime minister, has announced that Malaysia and Indonesia plan jointly to develop an “Asean car”. Read more
Nations have negotiated trade agreements in one form or another for centuries. And for centuries economists have undoubtedly been facing the same question: Do trade agreements really matter?
The orthodox answer is obviously that they do. When you lower the barriers to trade goods flow more freely across borders and businesses, consumers and economies as a whole benefit as a result. But HSBC and the Economist Intelligence Unit are out with a new business survey that offers some interesting practical realities. Read more
Of all the colonial legacies left by Britain, France and the Netherlands in Asia, one of the least talked-about – yet arguably one of the most lasting and problematic – is the patchwork of legal systems that divides the region.
Doing business in the Association of Southeast Asian Nations (Asean) is gradually getting easier thanks to the elimination of tariff barriers, expansion of supply chains and gradual harmonisation of customs procedures.
Yet one of the big “soft” barriers to greater Asean integration, and one which makes life hard for multinationals and ambitious local companies alike, are the differing jurisdictions across the 10-member bloc. Read more
“When eating an elephant, take one bite at a time”, US Army officer and Vietnam veteran Creighton Abrams once said.
In his new book, The Rise of the New East, Ben Simpfendorfer does just that. His elephant is “The East”, the group of almost 50 emerging markets ranging from Turkey to China that is home to well over half of the world population.
Simpfendorfer gives his topic a thorough treatment. While his insights seem logical and intuitive, taken together they give an impressive oversight of into key trends shaping the region. beyondbrics noted five insights that particularly stood out. Read more
Najib Razak, Malaysia’s prime minister, is so pleased that his country’s currency, the ringgit, is at its strongest level since 2012 that he felt the need to tweet it on Wednesday.
He added that – insha-Allah, or God willing – the growth rate of the majority Muslim nation would “remain anchored by strong domestic demand”.
If a report just out by Moody’s Investors Service is correct, Malaysia will need all the help it can get to ensure it remains on a healthy growth trajectory, with such reliance on domestic demand. Read more
By Michael Power of Investec Asset Management
MSCI has moved in mysterious ways, its wonders to perform… and again left Chinese stocks out of its global benchmark indices. At the same time, we learn that, after three years in index limbo, it will not add South Korea and Taiwan to the family of developed markets. These decisions have happened despite the fact that all three nations are among the world’s top 25 economies: China at number 2, Korea at 15 and Taiwan at 25. Read more
By Gavin Bowring, Asean Confidential
China’s two-way trade with the 10 nations of the Association of Southeast Asian Nations (Asean) has grown more than fivefold over the past decade and is on course to reach nearly $500bn this year. However, Chinese direct investment into Asean has been relatively anemic by comparison, accounting for only 7 per cent of China’s total foreign direct investment (FDI) stock.
But if Beijing gets its way, this is set to change. China plans a fivefold ramp up of its FDI in the region to a cumulative $150bn by 2020 from $30bn currently. Over the same period, it sees a doubling in bilateral trade to $1trn by 2020. The map below sets out the current trade flows and dynamics. Read more
Brewed coffee may not be an obvious market in southeast Asia, a region with a strong tea-drinking culture thanks to the region’s ethnic Chinese populations.
But Costa Coffee and its rivals think otherwise. The UK-based coffee chain – part of the London-listed Whitbread brewing and hotels group – is in the early stages of expanding into the region, home to 620m people and a growing middle class. Read more
If you are doing business in Asean – the Association of Southeast Asian Nations – be prepared for an electric shock.
Analysts at ANZ have looked at what’s happening with electricity prices across the region and are warning that they are set to rise, making it considerably more expensive to run factories. It will also add half a basis point on average to inflation, which is already inching up. Read more
By Kim Kyung-Hoon of SERI
Global investors who have shifted to “safer” Korea from southeast Asia should not assume they are unbuckled completely. Korea is raising its bet on Asean and its corporations’ balance sheets should increasingly reflect the economic direction of the 10-nation bloc.
Fronting the push is President Park Geun-hye’s self-styled “sales diplomacy.” Read more
Asian fund passport plans, to borrow the old cliché, are like London buses: you wait ages for one and then three come at once.
Wednesday’s announcement between the regulatory bodies of Singapore, Malaysia and Thailand to create a system for cross-border distribution of mutual funds was the third in the region this year. Read more
Singapore’s Club Street is one of its liveliest spots for the bar-hopping crowd and is a good indicator of the economic “feel-good factor” in the Asian city state.
It is also an indicator of the health of the Asian hedge fund industry. Before the global financial crisis the neighbourhood, known for its preserved Chinese shophouses, was also home to a community of boutique hedge funds. Read more
The victory for Japan’s ruling Liberal Democratic/New Komeito coalition in Sunday’s elections to the upper house puts Prime Minister Shinzo Abe in a commanding position. It raises big questions about Japan’s relations with the US, China and its other neighbours – and about Abe’s commitment to Abenomics, his three-part programme to revitalise Japan’s moribund economy.
But for some of Japan’s neighbours, a large part of the outcome may already be decided. And Frederic Neumann at HSBC says it is likely to be strongly positive. Read more
By Leif Lybecker Eskesen of HSBC Global Research
Japan’s economy has struggled for decades, weighed down by the debt hangover from the era of burst bubbles and other structural impediments. However, this may change if “Abenomics” delivers on its promises, which in turn has major trade and investment implications for the Asean-5 countries of Indonesia, Malaysia, the Philippines, Thailand and Vietnam. Read more
The Philippine economy grew 7.8 per cent in the first quarter from a revised 6.8 per cent the previous quarter, beating analysts’ expectations of an increase of just 6 per cent, as sharply higher investments and government spending offset the impact of faltering demand from China, America and Europe that slowed economies elsewhere in the region. Read more
The top emerging stock markets over the past two years were the Philippines and Thailand. Denise Law, director of financial research at the FT’s newly launched Asean Confidential service, discusses with Long View columnist John Authers what’s driving southeast Asian stocks and what risks and opportunities lie ahead.