Conference Presentation, Panel
Southeast Asia: A Compelling Case for Investment
Milken InstituteCecilia Mazzeca, Kirk Wagger, Cesar Purisima, Kasim Sid Patumsok, Richard Lee, Dina Jalal, AJ Gandhi, Carl Harris, Ben Rosen Manning, Nate Pierce
- ASEAN is projected to remain a highly dynamic region for the next 30 years, driven by superior demographics compared to China and deepening regional integration, with the ASEAN Economic Community formally establishing a single market and production base on January 1, 2016, while tariffs are expected to drop to a maximum of 5%.
- The region's economic trajectory includes a rise to the fifth-largest global economy by 2015, with specific growth forecasts of approximately 5% for Indonesia, 6% or higher for the Philippines, 8% for Cambodia, 7% for Laos, and 7.6% for Myanmar.
- By 2030, two-thirds of the world's middle class is predicted to reside in Asia, with approximately 20% of that population located in ASEAN, expanding from a current consuming class of about 125 million to a total Asian middle class of 3.2 billion people.
- Significant infrastructure development is planned over the next five to ten years, including China's revival of the Silk Route railway and highway system connecting Europe to Singapore, and Thailand's construction of road arteries linking the South China Sea to the Indian Ocean, which will facilitate direct travel from Singapore to Paris and spur urbanization-driven demand for power, water, and electricity.
- Business strategies are shifting from "China plus one" to "China plus two and three," with U.S. investors utilizing Singapore as a primary hub, evidenced by $204 billion in U.S. Foreign Direct Investment, and diversifying into Vietnam and Thailand for testing before reinvestment in broader ASEAN markets.
- The region offers diverse market opportunities ranging from insurance and consumer goods to technology and healthcare, fueled by a population where 65% is under 35 years old, enabling potential to leapfrog advanced nations in skills and IoT adoption.
- Current valuations in the region reflect expectations of seven to eight years of uninterrupted high single-digit growth, resulting in expensive asset prices compared to Europe, though investors are advised that a market correction is not anticipated due to strong underlying value and performance.
- While the region faces risks including high competition, non-tariff trade barriers such as Indonesia's requirement for 40% local smartphone content, and potential political volatility or nationalism, the economy is described as resilient, with projections that Indonesia's growth will not fall below 4% regardless of political events.
- Governance and transparency are trending positively with technology reducing autocratic influence, though investors face challenges from varying external tariffs, the need for common customs borders, and fragmented financial market integration despite the seventh package of financial integration efforts.
- Indonesia is positioned for a metropolitan revolution with a target of 7% growth over the next three years, including the addition of 35,000 megawatts of electricity and one million homes annually, while Thailand serves as a lifestyle icon for emerging neighbors like Myanmar, Cambodia, and Vietnam.