A game of truths in Asia

In April the International Monetary Fund (IMF) cut its global growth forecast to 3.3 per cent for 2019, down from 3.5 per cent in January. In October it was 3.7 per cent. Asia has been the world’s growth engine for some time, now it is slowing.

"Businesses can't make informed decisions unless they look more closely at what’s happening in individual markets.”

So what is this “Asia”? Asia – and we must always stress this – is not a single economy. There is no such thing as the “Asian economy”. Rather there are many economies within Asia - wildly diverse ones at that.

At ANZ we deal with a wide range of customers from diverse geographic backgrounds. We don’t need to tell our Asian-based customers to approach individual markets differently. But the message – for whatever reason - doesn’t always make it to the antipodes. Somewhere on the plane south east reality morphs into a fiction about a homogenous place that doesn’t exist.

For our Australian and New Zealand customers there is a key message: don't think about Asia as one market. That means don't get caught in the headlines about China. Don’t be put off by the ‘Asian slowdown’.  Don’t be scared away by the trade war.

It’s tough. The sheer size of China’s economy means its performance (and outlook) will always weigh disproportionally on the region. Suddenly promising numbers from smaller players get lost in the big picture.

We’re not saying the picture is all rosy. What we’re saying is businesses can't make informed decisions unless they look closely at what’s happening in individual markets.

Look around

At ANZ we encourage customers to think about diversification opportunities in Asia. Finding what works for an individual business will vary depending on industry, risk appetite and preferred business models.

While I emphasised at the onset it’s wrong to think of the enormously diverse Asian region as a single economy, the macro-economic data reinforces the sheer scale of the opportunity the region presents as a whole. As a market, the Association of South East Asian Nations (ASEAN) is the fifth-largest economy and the second-largest recipient of Foreign Direct Investment (FDI) in the world. The region’s population stands at 650 million and is growing by seven million a year.

Growth across the largest six countries in ASEAN is consistent at around 5 per cent. Australia and New Zealand would both leap at such figures. Forecasts suggest gross domestic product in the region could reach $US10 trillion by 2030.

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FDI into the region in 2018 came in at record highs. Amid all the noise around a reversal in globalisation and inwardly focused nations, there are countries in south-east Asia taking advantage of the change.

The key driver in south-east Asia is change. An increasing population is leading to urbanisation which is in turn driving consumer and domestic consumption. Consumers are changing their habits as affluence and standards of living continue to rise. These trends are in place and talk of tariffs is not going to stop the desire for better food quality and safety standards.

For business – and investors – success is to be found scanning different markets for the opportunities most applicable to their own strategy.

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Alternatives

Inevitably there will be businesses whose supply chains through Asia face difficulties related to the trade war. The good news is there are natural alternatives in the region if you know where to look.

Vietnam and India are two of the more well-known locations in a broader south-east Asian region well-suited as an alternative. Don’t make a judgement on Asia based on what is in the headlines – take the time to look deeper into what is on offer.

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Across ASEAN, increasing urbanisation, growing income and evolving consumer demands are supporting changing expectations around infrastructure, energy and education, leading to modern economies which are ripe with opportunity.

While there are as always plenty of reasons to exercise caution in certain markets and industries, there’s also a lot of opportunity being created as trade and investment flows adapt to a changing global landscape and as the underlying engines of growth in some of these developing nations accelerate.

Rising trade tensions are unwelcome but businesses will respond and adapt. Supply chains will shift and this will create opportunities for those who are able to take advantage of them. That’s where the diversity of the “Asian economy” becomes an advantage.

David Green is CEO Singapore and Head of South East Asia, India & Middle East at ANZ

This article was originally published on ANZ’s Institutional website.