CLSA: Southeast Asia To Get Even Richer

By Shibani Mahtani

Bloomberg

A shopper carries a Chanel shopping bag in Marina Bay Sands in Singapore.

Congratulations, Southeast Asia – it looks like you’ll have even more millionaires soon.

That’s one of the findings of CLSA Asia-Pacific Markets, a brokerage and financial services group, which is now joining the chorus of voices predicting Southeast Asia will take on a bigger role in the regional economy as it continues to integrate its markets and attract more foreign direct investment.

In its latest report on the region, CLSA found that the number of high net-worth individuals – people with over US$1 million in investable assets, excluding their homes – is set to rise so fast as Southeast Asia’s economy grows that their spending power could double within five years, reaching 400,000 individuals (from 193,000 today) with more than US$1.8 trillion in wealth.

This is a conservative estimate, says Amar Gill, head of thematic research at CLSA, because it doesn’t include high net-worth individuals from other parts of the world that are likely to move to the region in the coming years, especially to Singapore.

Mr. Gill also predicts that the expanding middle class in Southeast Asia will continue to shake up the region and attract more foreign direct investment. As this investment helps propel growth in rural areas, moving people from farms to factories, the group predicts that the percentage of the region’s people classified as “middle class” will increase from 18% in 2010 to 25% in 2015. That, in turn, should lead to more consumer spending, which itself will feed faster economic growth.

Of course, this is not the first time that financial analysts have predicted a big Southeast Asian resurgence, only to see countries such as Thailand fail to attract as much investment as they predicted. Southeast Asia was once among the hottest spots in the world for foreign investment, in the 1990s, but at times it has struggled to generate excitement since then as China and India have caught fire.

More and more researchers are touting Southeast Asia now, though, as uncertainties about China increase. CLSA says Southeast Asia is entering a “sweet spot” for investment – particularly as China loses its competitive edge with a more expensive labor market, while India remains a “regulatory quagmire” for investors, according to Mr. Gill.

Another reason, he says, is that Association of Southeast Asian Nation (Asean) countries are moving towards closer integration, which should create more opportunities and boost Southeast Asia’s profile. Asean countries have already taken steps to reduce trade barriers and are looking to further integrate labor markets and financial services by as early as 2015.

Mr. Gill said he remains hopeful there will be considerably more economic cooperation, though he admits there may be some delays. A so-called “Asean Trading Link,” which will allow investors to buy and sell shares in any of the participating markets while settling transactions at home, has already faced difficulties with some countries still unwilling to fully sign on.

Integration notwithstanding, CLSA says the numbers behind Southeast Asia’s rise speak for themselves. While many investors continue to worry about China’s future growth prospects, the group’s research shows that investment in Southeast Asia has approximately tripled since 2008 and continues to be on an upward trend, led by countries like Indonesia, which received a record amount of foreign investment last year.

One potential risk is that a slowdown in China could dent growth in Southeast Asia, which relies heavily on Chinese demand for locally-produced commodities such as palm oil and coal. But Mr. Gill says that Southeast Asia’s “internal dynamic” and the buying power of its growing middle class will be enough to sustain the region’s prosperity.

CLSA, which is presenting its report to corporate investors in Bangkok at a forum ending this week, has also offered their picks of the best Southeast Asian companies to invest in. They include AirAsia, Malaysia’s Genting Bhd. and its Singapore branch, Genting Singapore, Indonesia’s Bank Rakyat and Bangkok Bank, all of whose stocks could provide 70% returns in the coming years, CLSA says.