Danai Pathomvanich
Jul 10, 2014
Global investors have long realized that Asia will be the world’s economic growth driver in the next several decades.
Although China’s decades of double-digit growth-rates have captured most attention, the oncoming AEC 2015 (ASEAN Economic Community 2015) has created awareness of the region’s huge vibrant population and expected global-leading growth-rates in the next several decades.
GDP growth in Vietnam, Indonesia, Malaysia, Philippines and Thailand during the next decade will increase much faster than established economies such as recovering Japan and resource-rich Australia.
Many institutional partners who have invested alongside us in Asia and ASEAN said they clearly believe that the on-coming AEC 2015 will drive continuing economic growth and more importantly provide numerous excellent investment opportunities.
In addition, despite Thailand’s lingering political uncertainties, most institutional investors said that in the medium to long-term, Thai companies positioned in key industries will be great investments.
AEC 2015, they said will optimize regional economic-integration opportunities and make ASEAN a critical element of any Asia investment growth story.
Regional infrastructure projects
Recent studies by global consultants such as McKinsey confirm that a major ASEAN driver will be the need for new roads, ports, and power plants, and governments’ determination to expand capital markets.
These infrastructure developments will not only drive GDP growth but concomitantly multiply an already fast-growing consumer middle-class.
Our institutional investor partners tell us they are especially interested in appropriately structured ASEAN infrastructure developments projects particularly in Thailand and Laos. They want to ride the expected AEC 2015 economic dividend.
A recent McKinsey report indicated that over the next half decade, the ASEAN region will spend more than $US350 billion on infrastructure.
Indonesia, Thailand, and Vietnam will commit the largest amounts to infrastructure development, while Singapore is expected to spend little. Indonesia will address a lack of quality roads, inadequate power supply, and a dearth of public transport.
Although Thailand’s recent political uncertainty has placed much of this country’s planned infrastructure spending on-hold, the McKinsey report showed that this country’s infrastructure has lagged for many years.
For instance, while Thailand’s GDP grew at more that eight percent per annum between 1999 and 2008, infrastructure spending grew at only 3.6 percent.
“From 1999 to 2008, infrastructure spending as a share of GDP fell from over 9 percent to about 6 percent.”
These statistics and the country’s current financial capabilities augur well for GDP growth and investment opportunities once political stability returns.
Moreover, within ASEAN, numerous obvious infrastructure opportunities have been identified. Indonesia and Vietnam currently lack reliable electricity, quality roads, or seaports.
Laos needs a major revamp of its electricity grid.
Regional infrastructure companies including major Thai entities will be aggressively competing for much of this work.
Global regional institutional investors will undoubtedly be significant investors.
Growing middle-class consumers
ASEAN infrastructure expenditures will contribute significantly to an economic dividend of more middle-and-higher income consumers whose demands must be serviced.
Our foreign institutional investment partners have particularly shown a keen interest in food companies that will ride the benefits of economic growth and rising consumption in the region.
They are particularly interested in investing in companies that can benefit from AEC 2015 by expanding their current foot-prints throughout the region and eventually capitalizing on the region’s highest global growth rates.
Danai Pathomvanich is Founder and Managing Director of Hatton Capital Ltd, an investment banking and fund management company with offices in Bangkok, Shanghai and Hong Kong. He may be contacted at danai@hattoncapital.com
