ASEAN closer to SE Asian "EU" -- Good for Asian funds
January 17, 2007

The Association for Southeast Asian Nations (ASEAN) Summit  last week, the group took one step closer to forming a community similar to that of the EU. At its annual meeting, it asked the Eminent Persons Group to draft a charter that will impose EU-style binding regulations among its 10 members.

ASEAN also accelerated its integration plan to 2015, which means its goal is to have an EU-type common market complete by then.

In addition, ASEAN signed a five-year plan of action with China to expand free trade in information and communications technology. The agreement will go into effect in July 2007. In preparation for this agreement, tariffs between the ASEAN countries and China had been lowered starting in 2005. Trade increased 24% in the following year, totaling $160 billion.

At a separate meeting prior to the summit, the leaders of China, Japan and South Korea agreed to take a united front against North Korea, both for its abduction of Japanese and South Korean nationals, and its pursuit of nuclear weapons. This is the first time China has united its position against North Korea, and many credit the diplomatic efforts of Japan's newly-elected Prime Minister Shinzo Abe.

What the ASEAN Summit agreements mean:
The 10 ASEAN countries are small: their total 2005 GDP is only $884 billion, compared to China’s $2.2 trillion, Japan’s $4.6 trillion, the U.S. $12.5 trillion and the EU's $13.5 trillion. However, their GDP growth rates are forecast by the IMF to be in the 5-6% range for 2007, vs. 2-3% for the U.S. (Source: IMF World Economic Outlook 2006)

Even combined with China, the ASEAN GDP is less than the developed countries, at just over $3 trillion for 2005. However, if you are looking for portfolio growth, then smaller countries have that room to grow.

The multilateral trade agreements that are being signed lessen these countries’ need for the World Trade Organization (WTO). Communication among these long-standing enemies in the name of trade means that these countries realize the preeminent importance of economic prosperity for all, regardless of ancient grudges and even democratic principles. A single-minded focus on economic goals will lead this region into continued prosperity for the long-term.

Action steps:
Make sure you have a good proportion of your portfolio in international funds. Usually, Japanese companies are in developed markets funds, while Chinese and Southeast Asian companies are in emerging markets funds. Check with your financial advisor to see what your allocations are.

Source: ASEAN web site, Channel News Asia web site, China People’s Daily web site.