Asean urged to chart own course
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THE ASSOCIATION of Southeast Asian Nations, now in its first year of economic unification, needs to decouple from China and become much better at telling the global community about its economic prospects, Citi’s regional fund services experts said.
In the past, Asean had benefited from its robust trade with China, with Chinese consumption driving commodities growth in the region, boosting the exports of Indonesia and Malaysia.
However, when the Chinese currency depreciated and the US dollar strengthened, many Southeast Asian currencies were also adversely affected.
The “Asean story has to emerge as a separate distinct story where the fundamentals are understood by investors and it’s not just seen as a play on the growth of China or the growth of India.
“There’s a big consumption story in a lot of these economies,” Bryan Murphy, securities services cluster head for Asean excluding Singapore, said in an interview.
For instance, the story of “digitisation” in the Philippines and Indonesia would be among the catalysts to a higher gross domestic product and better consumption story that’s not directly correlated to China.
The banker is referring to the use of technology to boost connectivity and productivity among geographically diverse people, the two countries being archipelagic.
“The overall story is that Asean needs to emerge from being caught between the dollar and the renminbi.
“It needs to emerge from being caught between developed market inflows and emerging market inflows.
“It has to emerge in a way that it doesn’t kind of get overwhelmed by China,” he said.
Single market, production base
The 10-member Asean has formed the Asean Economic Community, a single market and production base that is envisioned to be a “highly competitive” economic region with “equitable” development and one that is fully integrated into the global economy.
Within Asean, there are those with higher per capita GDP like Singapore and Brunei and there are middle-income economies like Indonesia, Thailand, Malaysia, the Philippines and Vietnam.
Then there are the developing economies of Myanmar, Laos and Cambodia, which are fast catching up with their middle-income neighbours.
However, current emerging market indices still carried a heavy weight for China, which meant that the share of assets being invested in Asean was still much smaller.
In 1997, for instance, Thailand had an 8.8-per-cent weight in the MSCI emerging market index, which had shrunk to 2.2 per cent to date.
However, just as important is the buy-in by the citizens of Asean themselves.
In Asean, the framework had been driven by governments of member-states without any referendum among the people of each territory.
As a result, there had yet to be a popular demand for such an integration process.
“You can’t really move beyond the pace that people are comfortable with,” he said.
This was going to be an evolution rather than a revolution, he added.
Cheeping Yap, Citi’s Asia head of custody and fund services, said building connectivity was crucial to making the integration process a success, given that the financial infrastructure was one area that had lagged the progress in trade barrier reduction.
In the case of automobiles, for instance, Asean had been quite successful in creating a large automobile base, with a lot of Japanese manufacturers setting up shop in multiple countries.
“The same concept is not in place for mutual funds,” Yap said.
If the region could use the|same model for the financial industry, it would greatly benefit the region.
