Thursday, December 24, 2015

ASEAN Economic Community, AEC

The year was 1997, I was in UK doing a postgraduate course and watching TV on the British Parliament having a debate.  The cheers and jeers from the politicians in support and opposing the speaker's view was something lively and entertaining to me as this type of scene cannot be found in Singapore Parliament.  The Singapore Parliamentary is just plain boring and dull with most speaking with that monotone and emotionless expression.  Some even MIA from the session and some caught napping during the session.  While entertaining myself with the British Parliamentary, the topics that they were debating soon got my attention.  It was whether England should join in the Euro.  As I was listening to the pros and cons, a thought came to me, that was should ASEAN countries also forming an integrated zone like that of Euro ?  That was the my first thought on this ASEAN countries working together, having something in common and it was relatively important at that time as Singapore like its ASEAN neighbors were hit by the Asian Financial Crisis.  My thought then was if there is such an ASEAN integrated zone like that of Euro, ASEAN countries might not even suffer that heavy damage by the Asian Financial Crisis.

8 years later in 2005, that was the time when the ASEAN integrated zone idea resurfaced in my mind.  Then after being retrenched, I was sort of working out with a friend trying to do a tech start-up.  The product was a consumer electronics and since the Singapore market is so small, the focus was on ASEAN market (bigger and near to Singapore).  Should there be an ASEAN integrated zone, doing business will be much more easier.  That was my thought then.

Came 2010, that was the third time this ASEAN integrated zone resurfaced in my mind again.  This time round was a bit different as the blueprint for the ASEAN Economic Community, AEC was adopted in 2007 and the topics getting more and more attention from the public.  Though the blueprint was very much different from my own wish (integrated zone like that of Euro) but at least something was done by the ASEAN nations to grow their economy as an entity and not individual basis.

On 31st December 2015, AEC will be officially formed after the AEC Blueprint 2025 was adopted by the ASEAN leaders at the 27th ASEAN Summit on 22nd November 2015 in KL, Malaysia.  The AEC Blueprint 2015 basically has the following 5 characteristics :-

1. a highly integrated and cohesive economy
2. a competitive, innovative and dynamic ASEAN
3. enhanced connectivity and sectoral cooperation
4. a resilient, inclusive, people-oriented, and people-centred ASEAN

In short, extracting from wikipedia about AEC.

"AEC aims to implement economic integration to create a single market across ASEAN nations.  The areas of co-operation include human resources development; recognition of professional qualifications; closer consultation on macroeconomic and financial policies; trade financing measures; enhanced infrastructure and communications connectivity; development of electronic transactions through e-ASEAN; integrating industries across the region to promote regional sourcing; and enhancing private sector involvement.  Through the free movement of skilled labour, goods and services and investment, ASEAN will rise globally as one market with each member gaining from each other's strengths, thus increasing its competitiveness and opportunities for development."  

The benefit for Singapore economy from AEC need not for me to detail out here since almost all the media have reported that and a more concern is how an investor can gain from the AEC through investing in stocks.  Potentially, companies that involve in consumer products and service provider will have a new growth path since the population of ASEAN is over 600 millions, the 3rd largest consumer market just behind China and India (both having over a billion each).  Furthermore, infrastructure play like those of bank, telco, property developer and construction companies will also tend to gain given that countries like Vietnam, Myanmar, Cambodia and Laos still have lot of infrastructure growth potential. These are the companies that as an investor could benefit from.

Before we starting to get very optimistic about the AEC, we have to be practical too.  There are always 2 views for everything, pros and cons.  To say the AEC will have totally no negative or largely ignore it will be unwise either to the nation (economy planning) or the company (growth planning).  A lesson to learn from Euro was Greece which initially most overlooked the potential negative impact it will have on Euro (economic wise, Greece is not supposed to be approved into Euro) and only know of the problem when it happened.  As an investor, we definitely do not have any say in the decision making of the nation or the company but by knowing the potential negative of the AEC, we can avoid investment mistake.

One of the biggest mistake will be companies starting to shift all their focus and resources into AEC to grow their businesses.  AEC should be one of the growth path for the company and not the "one and only one".  We have seen in the past companies buying into the China growth story have shifted their main focus and resources into China and with China facing economy slowdown for the past few years, some of these companies are being stuck at the moment.  The expectation for AEC for the moment is quite high and if going down the road, should it fails to live up to the expectation, companies that channeled most of their resources there will again be stuck.  As an investor, need to watch carefully how company reallocate their resources to grow the business.

As a whole while we are trying to search for the next growth stock to invest in with the AEC, we also have to be mindful of not getting our expectation too high and unrealistic.  Not everything about the sexy AEC story will turn out nicely in the end.

  


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