Asia Vs. The Americas: Examaning Demographics, Economic Growth, and the Impact of Commodities

Overview of Frontier and Emerging Americas

I will use the MSCI frontier and emerging market components in the Americas as a benchmark to build a case for frontier Asia, and to highlight my preference for investing in Colombia and Chile.

These components include the following markets: Argentina, Jamaica, Trinidad & Tobago, Brazil, Chile, Colombia, Mexico, and Peru.

 

Demographics

 

0-14 15-24 25-54 55-64 65 and Older Median Age
Argentina 24.72% 15.43% 39.24% 9.14% 11.46% 31.5
Colombia 24.57% 17.54% 41.82% 8.9% 7.17% 29.6
Chile 20.27% 15.45% 43.17% 10.6% 10.51% 34.0
Peru 26.62% 18.63% 39.91% 7.62% 7.21% 27.7
Mexico 27.26% 17.72% 40.69% 7.41% 6.93% 28.0
Brazil 22.79% 16.43% 43.84% 8.89% 8.06% 31.6
Jamaica 27.56% 21.13% 37.59% 5.78% 7.84% 25.6
Trinidad and Tobago 19.34% 12.24% 46.1% 12.09% 10.23% 35.5

Source: Indexmundi/CIA

 

Demographics for these markets are also very favorable, and the median age for these observed markets is currently 30.4, slightly below the appealing average median age for frontier Asia.  Notable comparative advantages of frontier Asia include a large amount of countries with over half of their population under 24 (not present for any of these markets) and a comparatively lower median age(26.7).

 

Examining GDP: Frontier Asia’s Relative Superiority in GDP Per Capita

 

Country GDP(USD Billion) GDP Per Capita(USD)
Argentina 548.06 13,431.9
Colombia 292.08 6,056.1
Chile 240.22 13,383.9
Peru 192.08 6,121.9
Mexico 1,144.3 9.009.3
Brazil 1,774.72 8,538.6
Jamaica 14.01 5,137.9
Trinidad and Tobago 27.81 20,444.1

Another case for my preference for frontier Asia is these countries’ relatively lower GDP per Capita.  Markets such as Vietnam and Pakistan have a GDP per Capita of $2,111.1 and $1,429 respectively, and these low levels are not found in the MSCI frontier/emerging components in the Americas.

 

Population

 

Country Population(Millions)
Argentina 43.4
Colombia 48.2
Chile 17.9
Peru 31.4
Mexico 127.0
Brazil 207.8
Jamaica 2.7
Trinidad and Toboga 1.4
Average for MSCI Asia Frontier Components 115.5

Source: WorldBank

 

With the exception of emerging Mexico and Brazil, all of these frontier and emerging markets’ populations significantly lag behind some of the main frontier markets in Asia.  Asia currently accounts for 60% of the world’s population, making it the clear victor in this sense.

 

Annual GDP Growth(%): The Commodity Curse

 

2011 2012 2013 2014 2015 Q2 2016
Argentina 8.4 0.8 2.9 0.5 2.1 -3.4
Colombia 6.6 4.0 4.9 4.4 3.1 2.0
Chile 5.8 5.5 4.0 1.9 2.1 1.5
Peru 6.5 6.0 5.9 2.4 3.3 3.7
Mexico 4.0 4.0 1.4 2.3 2.5 2.5
Brazil 3.9 1.9 3.0 0.1 -3.8 -3.8
Jamaica 1.7 -0.6 0.5 0.7 0.8 1.4
Trinidad and Tobago -0.3 1.3 2.3 -1.0 -2.1 -5.2(Q1)
Average 4.6 2.9 3.1 1.4 1.0 ______

Source: Focus Economics

 

Economic growth for the markets I previously observed in frontier Asia and India was 5.7-7.3% between 2011 and 2015, a far cry from the level of growth present in the Americas.  Growth for these markets in the Americas averaged at only 2.6% between 2011 and 2015 and dropped to only 1% during 2015.  Frontier markets such as Argentina, Trinidad and Tobago, and Jamaica have historically had poor economic growth since 2012, and Argentina and Trinidad and Tobago now have negative growth.

It is impressive to note that Colombia, Chile, and Peru are all experiencing moderate economic growth from the plunge of the price of their main commodity exports, namely copper and oil.  Their relative economic resilience, compared to markets such as Russia and Nigeria, makes their current economic performance somewhat intriguing, and I think these markets are some of the best for commodity/emerging market bulls.

 

Health Expenditure Per Capita

 

Argentina 605
Colombia 569
Chile 1,137
Peru 359
Mexico 677
Brazil 947
Jamaica 266
Trinidad and Tobago 1,136

Source: WorldBank(USD)

 

Another interesting trend to note is that health expenditure per capita in frontier Asia significantly lags behind frontier and emerging markets in the Americas.  Frontier market such as Vietnam and Pakistan’s health expenditure per capita is $142 and $36 respectively.  Moreover, emerging India’s health expenditure per capita is currently $75, exceptionally lower for an emerging market.  The relatively lower health expenditure per capita provides ample opportunity for the growth of healthcare and pharmaceutical stocks in these frontier markets in Asia, for investors taking a long-term approach to these markets.

 

Inflation

 

Country 2015 Infaltion Recenet YoY Inflation (September unless otherwise noted)
Argentina 23.7% 40.50%(April)
Colombia 2.6% 7.27%
Chile 4.3% 3.1%
Peru 2.9% 3.13%
Mexico 2.5% 2.97%
Brazil 8.0% 8.48%
Jamaica 5.0% 1.80%
Trinidad and Tobago -5.1% 3.10%(August)

Source: WorldBank(2015)/Trading Economics

 

The majority of markets, with the exception of Brazil, Argentina, and Colombia, are not currently plagued by high inflation, similar to frontier Asia.

 

Brief Overview of Latin America Investment Themes

Colombia: If you are bullish on the recovery of oil prices and want to gain exposure to a country that has ‘crashed” from this, look no further than Colombia.  The country’s GDP growth reached 2.0% during Q2 2016, although approximately 1/3 of its exports are oil.  This level of resilience is impressive when considering other markets such as Nigeria, Russia, and Venezuela which have been struggling in the low oil price environment.

Chile: This country has been struggling amid the plunging price of copper, as approximately 44% of the country’s exports are copper.  Chile’s annual GDP growth was still 1.5% during Q2 2016, considerably lower than its historical average.  The country has the highest credit rating in Latin America, and I am particularly bullish for the country’s banks.

Vietnam: Benefit from Low Commodity Prices

On the other hand, Vietnam is an example of a country that has been able to macroeconomically benefit from low oil prices, and there are a larger number of industries that have benefitted from this environment.  Although Vietnam is a considerable exporter of oil and listed equity in this sector has experienced slowed financial growth, the country still benefits largely from this environment in the following ways: increased consumption, reduced cost of production for companies, and reduced transportation costs.  Moreover, the following industries in Vietnam are intriguing to consider amid the low oil price environment:

  • Plastic Manufacturing: Plastic manufacturing companies are able to benefit from lower material costs due to the declining price of oil.  Moreover, pen manufacturer Thien Long Group Corporation (TLG VN) has also benefitted from lower material costs in this environment.
  • Consumer Spending: Low oil prices also benefit multiple areas of Vietnam’s consumer goods sectors.
  • Oil Companies: I am bullish on select listed equity that operate in this area, as Vietnam’s industry has proven itself to be a global outlier.
  • Fertilizer Companies: Companies in this area are also poised to continue benefitting from low oil prices.  PetroVietnam Fertilizer and Chemical JSC is a strong pure play for this area.

Commodity Themed Investments/Frontier Asia Preference

The low commodity price environment has created a flurry of buy opportunities, whether it be for stable economies like Chile and Colombia, or specific stocks/industries in strong, high growth frontier markets like Vietnam.  For these willing to dig deeper, contrarian destinations such as Mongolia are even interesting long-term bets.

While I am bullish on Latin America’s long-term potential, particularly for Colombia and Chile, I think that frontier Asia is a safer choice, and has more promise for future economic growth.  Frontier Asia has been much more resilient amid the economic gloom that has passed since late 2014, and when examining various statistics that provide a futuristic view of growth potential, it appears to be more poised for growth in the future. Asia is equivalent to nearly 60% of the global population, and its global significance is poised to rise substantially through the rise of its middle class, as select frontier markets rise to the status of  some emerging markets in Asia.  Adding comparisons to other regions, such as the America and Africa, further solidifies a deeper bull case.

 

Relevant Insights

Overview of Frontier AsiaThe Fortune at the Bottom of the Pyramid(Part 1): Golden Opportunity for Frontier Asia.  A bull case for frontier Asia, which shows how the market is superior to emerging Asia in many aspects.

Investment Themes in VietnamVietnam Vs. Korea (A Tale of Two Countries: 20 Investment Themes for the Next Decade) – Part I.  20 different investment themes for Vietnam, my favorite frontier market.

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