Chinese Growth, Australian Resource Boom Fading, Looking for the Next Growth Markets
As Chinese growth continues to sputter, evidenced by the weak manufacturing data overnight and the Australian resource boom begins to fade, investors need to look for the next emerging markets that will draw both foreign direct investment and maintain a stable, open economy. Indonesia and Singapore may be those next markets, as GDP growth continues to remain strong in these countries and as they become less dependent on the larger Asian economies.
Although Chinese weakness may well weigh on these two nations, they are less dependent on Chinese demand than other economies such as Australia. It is for these reasons that Australia's economy is slowing and even Royal Bank of Australia Governor Glenn Stevens has noted that the resource boom has peaked. Indonesia, having grown 6.4 percent in 2011 and Singapore, having grown 5.3 percent in 2011 and being a financial center in the Asia-Pacific region, thus could represent the next emerging market growth stories.
In 2011, Jim O'Neil of Goldman Sachs (NYSE: GS) updated his coined term of the B.R.I.C. emerging markets to the B.R.I.C.-M.I.S.T. nations, where he now looks at Mexico, Indonesia, Singapore and Thailand as great emerging markets. However, Mexico is largely tied to the U.S. economy due to trade relations and a U.S. economy that barely grows at stall speed and will not produce enough demand growth to support strong growth in Mexico. Meanwhile, Thailand has been suffering from mass destruction from a series of floods caused by typhoons in the region. Thus, Indonesia and Singapore remain of the group.
Investors who would like exposure to Indonesia could invest via the iShares MSCI Indonesia Investable Market Index Fund (NYSE: EIDO), which consists in large of financials that represent 32.44 percent. Consumer stocks also make up a large portion of the fund, some 26-plus percent when discretionary and staples stocks are combined. Investors looking to take advantage of a growing consumer base in Indonesia could invest and gain exposure to financials, which would benefit from personal loan growth such as growth in credit card usage and consumer stocks.
Meanwhile, Singapore is a financial center and its economy will fluctuate more so with the global economy due to this nature. In good times, money floods into the country due to its higher interest rates than in the developed world. However, in weak economic times, money can leave the country at a rapid pace as it did in 2008, which can have drastic effects on the economy. Even so, for the same reasons as Indonesia, investing in the iShares MSCI Singapore Index Fund (NYSE: EWS) can help investors play a growing emerging market consumer. The fund is largely focused on financials and industrials, two macro-driven sectors that could boom if the global economy were to turn brighter. Also, its biggest holding is a telecom company, and as wealth levels in Asia grow, the spread of mobile telecom systems should aid this fund.
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