Panel
Asia Under New Management: Gambling on Regime Change
- Investors are expected to fund self-sustaining infrastructure plans themselves, as governments may not deliver desired policies immediately, with infrastructure needs in India projected in the trillions of dollars and capital markets needing to flourish rather than relying on international bank borrowing.
- Political leaders like Joko Widodo are anticipated to focus on infrastructure bottlenecks and corruption, though universal disappointment is expected due to high expectations, and his success depends on translating administrative skills from Jakarta to the national level within the first 100 days or first year.
- A massive "mean reversion" is predicted where the global economic center shifts back to Asia, mirroring the status quo of the 15th century, with Southeast Asia expected to outperform other regions on return on capital employed for the next 25 years despite potential competition from Mexico and Poland.
- China is expected to remain the dominant regional power in size and influence, facing a risky rebalancing act where its future depends on avoiding absurd territorial claims in the South China Sea and Indian Ocean in favor of win-win negotiations.
- Geopolitical risks are expected to rise significantly due to pushback from Japan, Vietnam, the Philippines, and Malaysia, with accidental clashes in the South China Sea potentially spiraling out of control if institutional risk mitigation frameworks do not emerge.
- The development of Western-style rule of law, independent judiciaries, and free media in Asia is expected to take a generation, while the immediate future may see vested interests capturing legislative power and hindering creative destruction.
- Income inequality is expected to worsen globally and in Asia, creating a potential time bomb unless jobs are created for the demographic dividend, particularly in India and Indonesia where growth relies on this labor force.
- The ASEAN Economic Community is expected to take a long time to become effective with practical difficulties persisting, though it may create opportunities for outside countries to use one nation as a base and reduce conflict among the 10 nations over time.
- Regulatory environments, particularly in India, are expected to take time to change due to bureaucratic inertia, with the "100 days" milestone viewed as a media creation that sets investors up for disappointment if not met by a billion-person economy.
- Financial risks in the near term are expected to include energy prices and volatility that previous generations of developed countries did not face, with the U.S. Federal Reserve's decisions representing the biggest short-term risk followed by the European Central Bank.
- Southeast Asia is expected to provide long-term trade and investment growth, with Malaysia and Indonesia outperforming strongly, while Thailand's underlying economy is described as fantastic despite negative headlines.
- Specific risks in Southeast Asia include the return of sectarianism in Thailand, Myanmar, and Indonesia, while countries like Cambodia, Laos, and Vietnam are expected to see significant growth despite carrying higher risks.
- Corporate success in the region is expected to depend on transparent books and good governance rather than leader charisma, with companies needing to innovate beyond textbook examples and address local issues like pollution-related health crises.
- Investors are expected to shift strategies to target specific states or businesses rather than generalizing about the region, diversifying beyond China into the United States and Malaysia, and mobilizing Asian savings through institutions like the BRICS Bank.
- The "Game of Thrones" scenario of ancient kingdoms duking it out for preeminence is expected to return to Asia, while the U.S. is expected to reinvent itself to provide investment opportunities regardless of leadership changes.