When most global economies are facing a slowdown in growth in the aftermath of the Covid 19 pandemic, the emerging markets in Asia shine as a bright spot on the investment map. Economies including China, India, Indonesia, Philippines, Thailand and Vietnam have exceeded expectations and outperformed other emerging economies during the past two decades. Moving forward, the forecast is for them to have higher GDP growth than the advanced economies in the ensuing two years.
Robust Track Record
The emerging economies of the Asian markets have exhibited strong performance in recent years. Leading up to the pandemic, in the previous five years, Vietnam enjoyed average annual growth of 7% while in China, the growth averaged 6.9% and in India and the Philippines, the growth averaged 6.7% and 6.5% respectively according to data released by the World Bank. Although the global economy including the Asian markets, faced negative repercussions during the pandemic, the emerging markets in Asia have staged strong recoveries. As per World Bank numbers, the GDP growth in India has rebounded to 8.9% in 2021, while China and the Philippines recorded 8.1% and 5.7%, respectively. Across the landscape of the Asian emerging markets, the GDP growth averaged an astounding 7.3% in 2021.
Investment Opportunities in Emerging Asian Belt
According to the International Monetary Fund, solid growth in the emerging markets of Asia is expected to continue for the next few years. In its last economic forecast, the IMF forecasted an annual GDP growth of 4.6% for emerging and developing Asia in 2022, rising to 5% by 2023. However, the numbers are more subdued in the USA with forecasts reading 2.3% and 1% in the respective years. Likewise, in the Euro area, the predictions are only slightly better with 2.6% and 1.2% in 2022 and 2023 respectively. Looking at other demographics, in the Middle East and Central Asia, the forecasts are 4.8% and 3.5% while Latin America and the Caribbean regions are predicted to grow by 3% and 2% in 2022 and 2023 respectively.
Apart from China, emerging Asian economies have positive demographic trends, with a young population making them well-placed to benefit from the ‘demographic dividend.’ In the corresponding economies, they are enjoying a middle-class dominant segment with its associated rising demand for goods and services, ongoing urbanisation trend, and a high level of technology adoption.
As per World Bank, Vietnam is expected to observe the strongest performance in 2022 with GDP growth forecasted at 7.5% with its reviving manufacturing and service sectors coupled with growing consumer demand and rising tourist figures. The Philippines is also expected to enjoy healthy domestic demand along with increased private investment and large public infrastructure projects contributing to GDP growth of 6.5% for 2022 as per the Asian Development Bank. Meanwhile, Malaysia and Indonesia are expected to benefit from a combination of increased demand from the domestic markets, revitalised tourism, and robust raw material exports. Both economies also stand to gain from increased commodity prices.
With these upbeat forecasts, the region will also likely face challenges and is not immune to the impact of external factors. One of the challenges that the emerging Asia markets face is slowing global growth which could negatively impact the demand in its export markets. Meanwhile, the supply chain issue remains as disruptions caused by the Covid 19 pandemic continue to work through the system hindering countries’ ability to deliver their goods to the markets. The emerging Asian economies must also contend with commodity price volatility. Although several economies in the region are currently benefitting from high prices of commodities triggered by the conflict in Ukraine, if prices remain elevated, they are likely to translate into rising inflation numbers which could upset domestic consumption.
The economies in emerging Asia are also not immune to the impact of the tightening monetary policies in advanced economies. As the central bank of the USA i.e. the Federal Reserve aggressively hiked interest rates to combat inflation, currencies in the emerging Asian markets have weakened against the US dollar. While the weaker currencies may make exports cheaper, it could further trigger domestic inflation hurting consumer demand which is one of the key drivers in emerging Asia.
With the developed economies facing heightened inflation, tightening monetary policy and increased risk of recession, emerging Asian economies could be one of the few places for investment opportunities. Despite the imminent risks of war, supply chain and rising prices of commodities, the region could still be a viable option for investors. The ‘Asian Century’ is well and truly upon us!