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Home > Investments > Emerging Markets

By Eunice Ngat-Chin Lim | Published Apr 10, 2012

Asean stocks can compete with China’s

According to a recent study by Standard & Poor’s (S&P), the best-performing stockmarkets in the past five years were all to be found in emerging economies.

Australia – whose avoidance of recession in the wake of the last financial crisis was widely described as a miracle – was the sole developed nation to feature in the upper half of the table.

One subsequent poll of experts painted a particularly unpromising picture for anyone with a spread of investments geared largely towards the west. The overwhelming consensus was that developed markets are unlikely to reassert their dominance.

Indeed, developed economies mustered a grand total of one vote – for the US – when it came to tipping the leading performers of the next five years.

Published ahead of November’s G20 summit in Cannes, the study offered further compelling evidence of how the global axis of economic power is moving from west to east.

This inexorable shift, not least as the west’s problems continue to mount, is now quite beyond dispute, and at its heart, of course, is China.

The dragon has now officially overtaken Japan as the world’s second-largest economy. Ministry of Commerce figures reveal foreign direct investment in China in the first eight months of 2011 alone totalled more than $77bn (£48.5bn).

Asia Society, a non-profit organisation that works to strengthen relationships between the US and Asia, predicts Chinese overseas direct investment could reach as high as $2trn by 2020. China surges on, while Japan, by stark contrast, finished in the bottom three of S&P’s study.

Yet China did not top S&P’s rankings, and guess again if you think Brazil, Russia or India claimed the honour instead (Brazil was second). In fact, the number-one spot went to Indonesia, whose stockmarket delivered an annualised return of 18.7 per cent.

This clearly tells us something about the wider potential of east Asia. It is easy to be blinded by China’s surge towards superpower status, to be awed by the remarkable figures generated by its transformation into the epicentre of the worldwide economy, but it does not have a monopoly on success.

Cooperation vs competition

Many academics have for years argued that the Far East’s economies should cooperate rather than compete if they are all to prosper in the long term.

Designed to reduce the threat of naked self-interest and resultant trade warfare, a number of Regional Trade Agreements (RTAs) have been inaugurated since the Asian financial crisis of 1997, with the most significant of all, the RTA between China and the Association of Southeast Asian Nations (Asean), coming into effect on January 1 2010.

China is without question in charge of its own destiny, and its influence on those around it cannot be denied. But new research by the Globalisation and Economic Policy Centre (GEP) and Nottingham University Business School sheds light on the sophistication of supply chains and production networks in the area and underlines that, while China predictably dominates, many of the dragon’s neighbours still have vital parts to play – and thus something to offer.

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