Emerging Markets in Southeast Asia: A 2022 Report

Southeast Asia: A 2022 report

The effects of the COVID19 pandemic are still being felt across the world, especially in terms of supply chains, and continuing lockdowns in countries like China. Furthermore, the war in Ukraine has caused skyrocketing inflation, and threats of a recession loom high across the western world. Although we might not feel optimistic about the economic outlook in the west, with financial markets and tech stocks sinking low, Southeast Asian emerging markets are a beacon of opportunity in these uncertain times, and could well present a safe haven for your business to recover and thrive.  

‍

ENTER: SOUTH EAST ASIAN EMERGING MARKETS

Just to make sure we’re on the same page, in this article, South East Asian emerging markets refers to the landmass occupied by Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

Many Southeast Asian countries, in particular Vietnam, leveraged their previous experience from epidemics like SARS to quickly and effectively roll out vaccines, stimulating their economic recovery early on. Vietnam managed to successfully exit its zero-COVID strategy, and in fact became the best performing market of 2021. Even Indonesia, which in 2021 was experiencing rapidly rising case numbers and expecting another wave to COVID to hit, has outperformed the already high growth expectations for 2022. This is partly due to the high commodity prices driving growth in the economy, even exceeding 2022 forecasts: Indonesian Q2 GDP was expected to grow 5.17%, according to Reuters, but actually grew 5.44%. Although the central bank does expect inflation and global headwinds to slow growth over the next two quarters, Indonesia is still performing well. In fact, this growth is a phenomenon that covers the region: according to Bloomberg, most of the region’s biggest economies are expecting 5% growth this year. Joshua Crabb, head of Asia Pacific equities at Robeco Hong Kong Ltd, commented that, “We have a lot of pent up demand here… Foreign direct investment is happening, opening-up is continuing to happen and the long-term structural story is quite positive.” 

‍

STRUCTURAL CHANGES: EASE OF DOING BUSINESS 

Private markets are another factor in the success of emerging markets in Southeast Asia. Indonesia has the highest number of unicorns in the region, partly due to the recent government emphasis on the ease of doing business, the reduction of corporate income tax, and a system for the single submission of business registrations. Another country that is pursuing this end is Thailand, which is now among the top three countries in Southeast Asia in terms of the ease of doing business - in fact, Thailand is ranked 21st in the world. Thailand has implemented many reforms over the last few years, including streamlining the approval process and creating digital systems for government services. 

However, not every country in Southeast Asia has such a conducive business environment. For instance, although Vietnam is a very promising economy over the next five years (it was the world’s best performing market in 2021, and its blue chips like Mobile World have outperformed US tech giants in the last 2-3 years), it is still a nominally communist country. Foreign ownership is limited in certain industries, like logistics and banking, hampering M&A activity. That being said, Vietnam is an economy to watch, as the government has the “pro-growth inclination of China in the late 1990s and early 2000s”, according to Moneyweek.  

‍

A CONTRAST TO CHINA

It’s worth noting that Southeast Asian economies are experiencing growth during this time, in contrast to China, the traditional powerhouse of Asia. Although the Chinese government targeted 5.5% GDP growth in 2022, output in Q2 contracted by 2.6%. Indeed, the consultancy Capital Economics even said that the real figure is likely even weaker, given that the Chinese government is used to having its economy outperform western countries’, and is likely massaging the figures to be more favourable. The slowdown in the Chinese economy is due to a variety of factors, most notably being the total lockdowns of cities like Shanghai, due to the government’s harsh zero-COVID policy, one of the few remaining in the world. This, combined with an insistence on using less effective Chinese made vaccines, and high vaccine hesitancy, means that the country is in a tight spot. Furthermore, the government has cracked down on high performing tech companies and their CEOs, particularly Jack Ma. Finally, China is re-emphasizing communist economic policies, focusing on “common prosperity”, which has frightened investors about the potential return to high taxes and less privatization. 

‍

SO MUCH TO OFFER

The takeaway so far? In short: be optimistic about these emerging markets. They had an abundance to offer before the pandemic, and still do: over 650 million inhabitants; rapidly increasing levels of internet activity and usage amongst its population, having generated an extra 100 million internet users between 2015 and 2019 alone. Along with these significant advances in the technological world, they have not only begun to catch up to internet use levels which we take for granted, but are placing themselves to embrace some of the most cutting-edge programming and software developments out there. They all boast of improving living standards, increasing human capital indexes, emerging middle classes, highly trained workforces ... the list goes on. All of these combined with their young population – more than half of their population being under 30, and vastly improving and frankly impressive output from their education systems makes an investment or expansion out here a profitable choice.

SO, DON’T GET LEFT BEHIND

Coming out of COVID everyone needs as big of a boost as they can get to stimulate business again, so what better time is there to move into a new emerging market full of future opportunities? Southeast Asia has so much to offer, and with Algomo, a multilingual self-learning chatbot built with cutting-edge natural learning processing technology, you can offer their clients just as much with fluent customer service in their native languages...