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With its proximity to China, ASEAN straddles between the familiar and alien for most investors. ASEAN is gaining momentum as the regional grouping comprises the world’s third largest population after China and India; is the sixth largest economy and the fourth biggest trading group, as illustrated below².

ASEAN is big … and only getting bigger²

Provided to illustrate macro trends, not to be construed as research or investment advice. Data is not indicative of current or future results.

We share our perspectives on how the ASEAN market could drive equity growth with its mix of old and new economies, and where we see medium- and long-term opportunities.

Is the ASEAN market less volatile?

As illustrated below, the ASEAN market is relatively less volatile than the investors generally believe, even though emerging-market stocks and bonds are generally considered risk assets because of historical political instabilities.

ASEAN equity index is less volatile than Asia and Europe over the past decade³

Source: J.P. Morgan Asset Management, MSCI, Data Stream. Data as of May 2022. Equity Indices shown are MSCI Country Indices. Volatility = 6 Month Rolling standard deviation of monthly returns (in USD). They are for illustrative purposes only and serve as an indication of what may occur. Indices do not include fees or operating expenses and are not available for actual investment. AxJ = Asia ex-Japan, EM= emerging markets.

But ASEAN has undergone a healthy reset over the past 10 years with deleveraging and continuing infrastructure investment. Additionally, the region has presented equity opportunities¹ with its expansion into new industries and acceleration of e-commerce, alongside a revival of traditional industries such as commodities, tourism and manufacturing.

Where we see medium- to long-term opportunities

We believe accelerating vaccinations could bode well for the ASEAN market in 2022 compared with 2021.

Vaccines continue to be available in Singapore and Malaysia. As of August 2022, 93% of the total population in Singapore⁴ and 84.1% in Malaysia⁵, respectively, have received at least two doses of vaccines. Thailand, the Phillipines and Vietnam are also lifting vaccination rates to help accelerate economic recovery and drive domestic consumption growth.

Tourism is a major contributor to Southeast Asia’s economy. For example, Thailand’s tourism revenue accounted for 18.21%⁶ of its total economy in 2019. With the onset of the public health crisis, mobility restrictions have hindered economic recovery as inbound tourist numbers dropped to historic lows. Lately, vaccination progress in Southeast Asia has enabled the region to reopen borders and restart tourism, and to gradually resume economic activities.

Even before the onset of the public health crisis, some businesses have relocated their factories from other parts of Asia to ASEAN to diversify their manufacturing base as well to mitigate rising labour costs. Businesses will likely continue to diversify, driven by rising inflation and transportation costs as well as pressure on profit margins.

A digital-led healthy reset

Conclusion
 

ASEAN economies are straddling between the old and the new. Supported by the old economy, we see strong and sustainable growth in Southeast Asian equites in the next decade as the region’s quality corporates harness new technologies and undergo digital transformation.

A bottom-up approach and top-down considerations are crucial when investing in emerging markets. Harnessing a dedicated team of five ASEAN investment professionals with an average of 17 years of industry experience¹⁰, J.P. Morgan Asset Management seeks optimal growth opportunities on ASEAN’s road to recovery.

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations, may or may not come to pass. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.

Diversification does not guarantee investment return and does not eliminate the risk of loss. 

1. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions.
2. Source: UOB Economic-Treasury Research, Macrobond, Visual Capitalist. Data as of end-December 2020. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
4. Source: Ministry of Heath Singapore, data as of 01.08.2022.
5. Source: Ministry of Health Malaysia, data as of 07.08.2022.
6. Source: Ministry of Tourism and Sports（Thailand）, Statista. Data as of May 2021.
7. Source: “e-Conomy SEA 2020”, Google, Bain & Company, Temasek, 10.11.2020.
8. Source: “ASEAN E-commerce: beyond the Pandemic”, Hong Kong Trade Development Council Research, 09.06.2021.
9. Source: “Indonesia On Track To Dominate The Supply Of Nickel To Make Batteries”, Forbes, 02.06.2021.
10. Source: J.P. Morgan Asset Management, data as of 30.06.2022.

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