The New Global VIPs – Bet on Asia for Big Gains

06.10.2016 • Emerging Markets

From Merryn Somerset Webb – MoneyWeek Magazine (Great Britain) –

Across the developed world, investors are holding their breath, wondering which extreme monetary policy tool central bankers will wield next to try to generate sustainable growth. But if it’s growth you’re after, forget the major Western economies. The four fastest-growing economies in the world (I am skeptical about China’s official GDP data) are all in developing Asia. Each is run by pro-business leaders, and should see accelerating growth over the next two years. They are achieving this without monetary gimmicks, and – as the table below shows – with relatively “normal” interest rates. Taken together, Indonesia, Vietnam, India and the Philippines comprise the world’s fourth-largest economy, and are set to overtake Japan next year to become the third largest. Their success increasingly matters for the rest of us – the US will need to grow by more than 1.7% this year to match the contribution of these four to overall global GDP growth.

Bond investors are taking note – government bonds offering positive yields are increasingly rare today, and as a result, emerging-market bond-fund inflows have been strong all year, driving yields lower as prices rise. Stock markets have been firm too. Indonesia’s is up 14.6% year to date, Vietnam’s 14.0%, India’s 9.3% and even the Philippines’ – despite growing political concerns, which we’ll come to later – gained 8.6%. The currencies of all four have been stable to strong against the US dollar, so returns for overseas investors have been impressive.

So what are the risks of investing in these high growth marvels, and which are most appealing?

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