The booming economies of Thailand, Indonesia and the Philippines present a ‘strong’ potential for investors to boost future profits.
The observation comes from investment firm Baring Asset Management who say investors should look more closely at the countries’ healthcare, tourism, retail and agricultural companies.
Barings also point to the opportunities for companies involved in their massive infrastructure projects.
Known as the Association of South East Asian Nations (ASEAN), Barings say other countries in the region offer great scope for investment.
SooHai Lim, an investment manager with Barings’ ASEAN Frontiers Fund, said: “These countries are finding infrastructure investment is becoming increasingly important though theirs are in the shadows of bigger spending neighbours India and China.
Caution for investors
“We don’t believe that investors fully appreciate the potential for significant growth in the region.”
He said the obvious markets would be Indonesia and the Philippines, closely followed by Malaysia and Thailand which are all offering opportunities at an ‘reasonable price’.
A big chunk of the region’s growth will be fuelled by a quickly-expanding middle class keen to spend its new wealth, he said.
However, there is a note of caution for prospective investors looking to exploit opportunities in the region.
One analyst from Standard Life Investments says that emerging markets are finding it much more difficult to make the transition to a developed economy.
Essentially, these emerging markets cannot sustain the rapid growth required unless the developed world is also growing.
Those are the thoughts of Frances Hudson, a global strategist at the investment firm, who said: “According to the World Bank, only 13 countries have moved from upper middle to high income – one of the measures of a developed economy – since 1960.
“Of those, five are the Asian tigers; others include Greece, Ireland, Spain and Israel.”
Investors looking to enjoy good profits should focus on the country’s currency and government bonds in an emerging market’s early days.
High yield ETPs
Only then, says Frances, should investors look at equities and she warns: “Strong economic growth doesn’t always equate to strong equity performance and emerging markets cannot grow in isolation. Investors should be wary of indiscriminate investing in these markets.”
Meanwhile, the BlackRock Investment Institute has published a report on the future of fixed income exchange traded products (ETP) – the growth of which the firm says has been ‘swift and surprising’.
ETP’s are derivatively-priced securities traded on exchanges and which are benchmarked to various indices, commodities and stocks.
Now BlackRock has looked at where investors are heading and they say that financials dominate investment grade ETPs, making up 39% of the market and are almost three times the size of the next biggest sector which is consumer non-cyclicals.
The firm says those ETPs which have a high yield are generally holding a more diverse selection of bonds, particularly in communication firms.
For emerging market debt ETPs, investors are snapping up those featuring Brazil, Mexico and Russia.
Though of those ETPs, the biggest profit return came from exploiting foreign currency fluctuations.