Asian economies are turning the corner

Asia was the first region to be hit by the virus and the first to come out of lockdown. Now it is leading the global recovery.

South Korea, a bellwether for world trade thanks to its deep integration into Asian supply chains, has become the latest economy to enter recession. Second-quarter GDP slumped 2.9% on the year, driven by the biggest quarterly drop in exports since 1963, says Alex Holmes of Capital Economics. 

Seoul has dealt well with the virus and consumption is growing again, but that is being overshadowed by shaky global demand as trading partners struggle to “get back on their feet”. The rebound will be slow.

Asia was the first region to be hit by the virus and the first to come out of lockdown, Jason Hollands of investment services group Tilney told Sarah Bridge in The Mail on Sunday. 

Now it is leading the global recovery. Emerging markets can be a “roller-coaster”, but that is in the price. Korean equities, for example, trade on a very reasonable cyclically adjusted price/earnings ratio (Cape) of 12.3.

Asian nations have distinguished themselves in their response to Covid-19, with death rates far lower than those in the West, says Kishore Mahbubani for Project Syndicate. While Western politicians have neglected institutions and expertise, Asian nations have invested in “good governance”. Per capita health expenditure in Vietnam increased by 9% a year between 2000 and 2016. The result is that Covid-19 cases have been very low and output has swiftly returned to near-normal levels.

Following in China’s footsteps

The health picture is only one facet of Vietnam’s admirable “strategic discipline”. The country was once one of the world’s poorest, but its doi moi (renovation) reforms in 1986 changed everything. 

The country emerged as one of the world’s fastest-growing economies, clocking up average annual growth rates of around 7%. In a single generation extreme poverty rates fell from 50% to just 3%. 

Vietnam’s export-led growth model owes much to the Chinese experience, writes Buttonwood in The Economist. That leaves it vulnerable to slowing global trade, but it is still one of the few countries where GDP is expected to grow this year. A “darling of multinational firms” who need to shift supply chains out of China, the nation is proving a “refuge” from the squalls of the trade war and deglobalisation.

Vietnam is “an economy to be reckoned with”, agrees Craig Mellow in Barron’s. Yet the investment picture is more complicated. Regulations limit foreign business ownership and “arcane trading bottlenecks choke liquidity”. It is for this reason that the country is still classified as a “frontier” rather than an “emerging” market, but there is no doubt that there is opportunity here for those willing to invest “carefully”. MoneyWeek’s favourite Vietnam play is VinaCapital’s Vietnam Opportunity Fund (LSE: VOF)

Recommended

The end of the era of optimisation
Global Economy

The end of the era of optimisation

A focus on maximising returns has made economies too fragile, says Edward Chancellor.
23 May 2022
Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
What's behind Sri Lanka’s crippling debt crisis?
Emerging markets

What's behind Sri Lanka’s crippling debt crisis?

Sri Lanka has been hit by a triple whammy of economic shocks and has gone to the IMF for a bailout. It may just be the first domino to fall in a globa…
20 May 2022
Investing in drugmakers: uncommon profits from curing rare diseases
Share tips

Investing in drugmakers: uncommon profits from curing rare diseases

Treatments for medical conditions with only a small number of sufferers can still be very attractive for pharmaceutical companies and investors becaus…
20 May 2022

Most Popular

The ten highest dividend yields in the FTSE 100
Income investing

The ten highest dividend yields in the FTSE 100

Rupert Hargreaves looks at the FTSE 100’s top yielding stocks for income investors to consider.
18 May 2022
Imperial Brands has an 8.3% yield – but what’s the catch?
Share tips

Imperial Brands has an 8.3% yield – but what’s the catch?

Tobacco company Imperial Brands boasts an impressive dividend yield, and the shares look cheap. But investors should beware, says Rupert Hargreaves. H…
20 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022