Bangkok’s JFK moment

Southeast Asia is attracting a lot of attention from investors - and for good reason, says Lars Henriksson. Here, he explains how to gain exposure to this exciting market.

On 26 June 1963, the people packed into a square in West Berlin to hear John F Kennedy speak. They lay on sloped rooftops and swelled from the balconies to get a glimpse of the President. Because, in 1963, something important was happening in West Germany.

It was rebuilding rapidly after the war and joining the rich, free countries of the West. When JFK told the assembled crowd "Ich bin ein Berliner", it was because America wanted in on that story.

Barack Obama was re-elected less than two weeks ago. And what was his first order of business? He jumped on a plane to Southeast Asia with plans to deliver a speech in Bangkok, and then meet Aung San Suu Kyi in Myanmar.

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A week later, Bangkok welcomed the next most powerful man in the world, the new Chinese president Xi Jinping. Everybody wants to deal with the countries in this region just like the great powers jostled to get close to Germany in the 1950s and '60s,

In central Bangkok, I'm struck by how clean the streets are, how traffic is flowing and new flags decorate the lampposts. The Thais know how to put on a good show. Obama chose Thailand over Brazil, Europe or any other nation for his first overseas visit.

Why? Because politics is pivotal in The New World. As the legendary Russell Napier put it when I saw him in the City, "if you know anybody who studied politics at university - buy him a drink!"

Today, I want to talk what this new political partnership means for Thailand and Southeast Asia. And why it points the way to a massive opportunity for UK investors over the next few years.

Hey, Johnny!

The US and Thailand have a long and close relationship. During the Vietnam War, the US helped to upgrade infrastructure, awarded scholarships and advised on modernisation of the Thai economy. The Americans invested in Thailand to prevent it from falling under the influence of communist China.

As a Thai language student at a school annexed to the US embassy, I saw this relationship up close in theearly 1990s. The Thai language grammar textbook was written by the US army and contained useful phrases like "are you a communist?" and "what's your military grade?".

I lived among characters who'd washed up in Bangkok during the war and never really left. As a member of the Foreign Correspondents Club (FCC), I had access to key decision-makers and thechance to learn from some of the most informed people in Asia (often Americans).

During the weekends, my friends and I hired a car and travelled to places like river Kwai, Hua Hin, Khaw Yai and Khorat. Normally the driver played non-stop Hotel California, Take me Home, Country Roads or other, ahem, evergreens'. The young local kids used to greet us by shouting, "Hey, Johnny!".

After the fall of theSoviet Union in 1987 and the Asian financial crisis in 19987/98 when Thailand had to borrow on strict conditions from the IMF, the relationship cooled off. After 9/11, America spent ten years distracted by its own issues.

Now, US priorities have changed. Last year, the US military issued its first new overall strategy document in six years. It called for more focus on Asia to balance the increasing power of the Chinese military, since China could, in the future, threaten global trade routes where Southeast Asia plays a pivotal' role.

This courtship is being closely watched by China, whose turn it was to visit the King of Thailand, Bhumibol Adulyadej, just days after Obama. My bet is that the King prefers President Obama. After all, he was born in the US, is a known jazz-lover (the composer of a number of pieces himself) and played clarinet with Benny Goodman.

A unified $2.5trn market

Since we wrote "Your gateway to the Mekong boom", the Myanmar opposition leader Aung San Suu Kyi has made several overseas trips and the Myanmar government has approved the long-awaited Foreign Investment Law. The law allows foreign investors to own 100% of most businesses, offers tax privileges and security of investment and the rights to lease land for 50 years, extendable for an additional 20.

On 26 October, after 15 years of negotiations, Laos agreed to join the WTO in early 2013. Laos agreed to cap its tariffs at an average of about 19% and expand market access. It has also passed, or is working on legislation to boost protection for intellectual property, improve customs procedures and otherwise bring the country into line with international trade norms. Laos GDP is expected to reach 8.8% in 2012, making it the fastest growing economy in Southeast Asia this year.

The main benefit of Laos's WTO membership is that the Association of Southeast Asian Nations(ASEAN) for the first time offers one large $2.5trn market of 600 million people andten nations, all conforming to WTO rules. This is important for two reasons: ASEAN is positioning itself as an alternative to China for foreign investors; and it will make it easier to take advantage of any relative comparative advantage ahead of the AFTA.

I think the US interest combined with AFTA 2015 will allow the Mekong region to compete for a top slot on the global investment chart in 2013.

Dare to go native

There are three ways to get exposure.

Your first option is to buy a British company that's involved in the region. But it could take years for local companies to build up a significant presence.

The second option is to buy an Asia ex-Japan or Southeast Asia fund and hope that the fund manager finds good stocks with Mekong exposure. Assuming he does that, the relatively large weighting of China (in Asia ex-Japan funds) and Singapore (in Southeast Asia funds) make any contribution from Mekong stocks rather insignificant.

But the most direct way is to familiarise yourself with these markets and buy local stocks. This is our mission at The New World. We bring you the information so that you can profit.

Cambodia and Laos have stock exchanges, but they are too small and illiquid. The best way to trade is through Bangkok or some of the other growing ASEAN bourses. And what to buy? We discussedtwo stocks in our last report, but that's just the beginning of this story. This story is starting to build momentum.

Obama knows that this is Thailand's moment, and it feels like the people of Bangkok know it too. I have a feeling this won't be his lastvisit to the Mekong region...

This article is taken from The New World, MoneyWeek's FREE regular email of investment ideas and news from Asia and Latin America. Sign up to The New World here.

Lars is an emerging-markets expert, with many years of 'on the ground' experience hunting down profit opportunities in Asia. Lars spent ten years living in Malaysia and Thailand, seeking out strategic opportunities, before moving to London to manage the Oracle Asia Absolute Fund. In short, Lars has real knowledge of where the opportunities in Asia are.