Economics is a complex subject.
You can learn a lot about the big subject of economics by understanding a few core principles. You can find examples of these principles by studying the economies and emerging markets of Southeast Asia.
This week, I am going to share some fascinating insights about SE Asia, and explain why I believe there are amazing investment opportunities in this region of the world.
Let’s dive in.
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One of those core principles is demographics, which is the study of age, population, gender, and income. Demographics are important because people behave differently in society as they move through different age brackets.
To understand demography, you have to understand birthrates. From an economics perspective, birthrates are unique because they are very well understood and predicted. You can accurately predict how many 50 year old people there will be in 30 years, by knowing how many babies were born 20 years ago.
As long as statehoods collect and report even semi accurate data, the demographics of a country mean a lot.
The Demographics Of Our World Have Gone Through A Major Shift In The Last 200 Years. Why? Because Of Industrialism.
Industrialism makes societies older. As countries develop industry, they start having fewer and fewer babies.
For a society to industrialize, one of the requirements is densely populated areas. These population densities become cities, and the cities provide the transportation and the condensed supply chains that make factories possible.
Cities make older populations for two reasons.
1. Less space: When you live in cities, you mostly live in condos, apartments, or smaller housing. It’s very difficult to manage a big family in a 2 bedroom condo.
2. More expensive: When you move into a city, it means you move away from the farm. When your family depends on the farm, children become a means of cheap labor. But in cities, they are an additional mouth to feed and don’t contribute as much economic input to the family unit.
Back To Southeast Asia
Southeast Asia (and Mexico) are one of the last remaining demography’s that have a positive birthrate.
When you have more young people than older people, you are creating an economic system of production.
Young people provide the consumption base for industrialized economies. Young people buy products, contribute to federal income tax, buy houses, buy cars, and generate the movement of cash that a thriving economy needs.
Older people provide the cash infusion and the liquidity. Most of the funding and capital market dynamics in a society come from people above the age of 50. It’s a delicate balance, and Southeast Asia is one of the only places in the world that has a healthy balance of youth fueled growth mixed with a stable foundation of older people to provide the capital.
The economies of The Philippines, Thailand, and Malaysia will have growing economies over the next decades. This will be especially true if they are able to steal the manufacturing base away from China.
Next, Let’s Talk About China
The Chinese economy has gone through an enormous growth period over the last 50 years. China has industrialized faster than any country in history.
This period of industrializing has propelled China to become one of the most powerful economies in the world. But that growth came with a cost.
Because of the rapid growth of industry, China has a collapsing demographic. This means that they have so few young people, they will have a very difficult time providing an internal consumption base in their own economy.
But in addition, the factory line of China is also breaking down. They have priced themselves out of the market. The demographics problem in China is was gets all the headlines, but the real story of China’s economic downfall will be it’s manufacturing decline.
Manufacturing labor costs per hour for China, Vietnam, Mexico from 2016 to 2020. (in U.S. Dollars)
Vietnam and Mexico are in a position of absorb a significant portion of China’s manufacturing capability. This is bad news for China, but good news for the rest of SE Asia and for the United States.
In fact, President Biden has already signed a deal with Vietnam to create a “strategic partnership” in the areas of chip manufacturing, science, labor markets, and electronics.
More or less, The United States has agreed to help fund the buildout of manufacturing that will transition some of the base away from China and onto friendlier lands.
There are secondary effects to this, mostly with the supply chain. Once you understand the shipping routes, you will see how the cargo ships pass through Southeast Asia (mostly through The Straight Of Malacca) before they get to China.
This means that products reach SE Asia in the supply chain much sooner than they reach China. In addition, because of geography, SE Asia provides a more centralized shipping port that connects it with the rest of the world.
The Straight Of Malacca deserves and entire issue within itself, but for the sake of today’s article, understand that this important Indonesian straight makes it much easier for Southeast Asian countries to get the supplies needed to build out the manufacturing base.
The Opportunities I Am Looking At
If you want to learn more about how the world is changing, I recommend reading “The End Of The World Is Just The Beginning” by Peter Zeihan. It’s a brilliant breakdown of how deglobalization will change the power dynamics of the world.
That book will give you a much better understanding of how the economic powers will change, as I can only fit so much into a weekly newsletter.
Now, let’s get to the good stuff.
It’s one thing to know HOW things will change, but it’s another to identify the business opportunities that change will bring.
Here are a few …
Real Estate And Rental Properties In The Philippines
The Philippines has one of the healthiest population demographics in the world. There are so many young people in the country, and all of them need a place to live.
In addition, the Philippines is a country that is closely connected to the United States. The Philippines is quickly becoming the call center of the world, and there are major opportunities in metros like BGC, Makati City, and Pasay City, and Santa Rosa City.
Ecommerce in Thailand
As we mentioned above, the demographics in Thailand make for an explosion in spending. There are also many young people in Thailand. These people want to buy clothes, go out to eat, spend time with friends, and start businesses.
The Thai people are rapidly accepting digital lifestyle. Bangkok is a massive metropolis, and it’s is one of the worlds hubs for “digital nomad lifestyle.”
If you spend even one day in Bangkok, you will see the bustling of the city and understand that the young, urban professional class will continue to drive growth for the country for decades to come.
These opportunities will come in the form of …
- hospitality (now would be a great time to build / buy or remodel a hotel in Bangkok)
Tech In Singapore
Singapore is a small but significant island country right in between Indonesia and Malaysia.
Singapore could be seen as The Silicon Valley of Southeast Asia. The tech scene in Singapore is truly spectacular.
I personally don’t have much interest in starting a tech company in Singapore (or anywhere for that matter). What intrigues me most about Singapore is their willingness to accept foreign investment.
Singapore has a very tax friendly finance system that attracts foreign investment. When I look at Singapore, I see many ways to make a return on capital. None the less, doing so in a way that creates tax havens to help compound returns in the future.
Singapore’s comprehensive network of double taxation agreements (DTAs) and free trade agreements (FTAs) further enhance its attractiveness to foreign investors by providing tax reliefs and access to preferential markets. The country’s legal and regulatory framework supports foreign ownership and offers tax incentives for businesses, underlining its commitment to fostering a conducive environment for international companiesquote source: aseanbriefing.com
I found it difficult to write this week’s newsletter. There are so many opportunities in this section of the world, and it’s challenging to compress it all into 1500 words.
The world economies are dynamic and it’s slightly more complicated to say “this part of the world is growing.”
I want you to understand that this is a story about population.
Southeast Asia (and Mexico) are the only parts in the world that have healthy populations. The United States also falls under the category, but we manufacture our population growth and demographics through immigration, (although, any U.S. citizen will know that our immigration policy is a mess right now).
Southeast Asia simply has the population output that will support a growing and healthy economy.
If you factor in foreign investment form the US, the stripping away of Chinese manufacturing, and the industrialism build out in Southeast Asia over the last 40 years, my view is that growth in Southeast Asia is a statistical certainty.