Good riddance, 2019. In many respects, but certainly economically, this year has been a pretty bad one. Global growth, as forecast by the International Monetary Fund (IMF), will have dropped to just 3%, from 3.6% and 3.8% in 2018 and 2017, respectively. That is the weakest performance since the financial crisis 10 years ago.
Will the coming year be any better? Barely. The IMF forecasts worldwide GDP growth of 3.4% for 2020 but immediately hedges its forecast, pointing out that this improvement is largely due to several countries in recession recovering a little (Turkey and Argentina, for example), rather than the world emerging from its “synchronised slowdown”. The main engines of the global economy: the US, China, manufacturing and trade, are all still slowing or sluggish. As a result, even the IMF’s 3.4% forecast remains “precarious”.
Nor are there any obvious sources of fresh stimulus. Monetary policy, while remaining accommodative, is largely played out. Where they can, central banks are still cutting interest rates, as in India and Indonesia; but most have reached their floors. And though many countries have the scope to provide a fiscal boost, few can muster the political will. Japan did recently announce another big supplementary budget, but it also raised its consumption tax in October.
Technological innovation is continuing and may save us all in the end. But many of the unicorns that created new jobs and services over the past few years are in retreat, at least temporarily. Meanwhile, the costs of climate change and an ageing global population are becoming a reality. And risks of disruption remain high, with populism and protests spreading ever more widely.
Against this gloomy backdrop, investors should focus on pockets of steady growth and political stability – and the obvious place to seek both is Asia. The IMF expects growth of 6% from Emerging & Developing Asia in the coming year, despite China’s continued slowdown – almost twice the global rate. Our own analysis concurs. So here are scoutAsia’s favourite investment destinations for 2020:
- Vietnam: this is still our top pick and, to be fair, pretty much everyone else’s too. Vietnam boasts rapid growth of almost 7% a year (6.7% in 2020, according to the Economist Intelligence Unit) as well as a sizeable, young population of almost 100m, making for a promising domestic market. The government is stable and there is little chance of political change. While it is nominally Communist, the leadership will continue to promote foreign direct investment and Vietnam is the prime beneficiary of manufacturing relocating out of China. Hanoi has also begun restructuring and privatising state-owned enterprises, though only slowly.
- India: there is no doubt that the economy has slowed markedly during 2019 -- to around 5% -- primarily due to a financial squeeze as (state-owned) banks have focused on reducing bad debts rather than lending. But both the EIU (6.3%) and the IMF (7%) forecast a significant rebound in 2020. The central bank has been cutting rates steadily and India's underlying advantages of a huge population, excellent demographics, solid English-based education and a strong entrepreneurial tradition, remain undimmed. The question for the coming year is whether Prime Minister Narendra Modhi's will focus more on his Hindu-first agenda, which would be negative, or tackle some of the structural reforms the country so badly needs.
- Myanmar: yes, there are plenty of risks in frontier markets like this and international views of Myanmar have been dominated for several years now by the Rohingya refugee crisis. Domestically, however, this is much less of an issue and while the military's continued strong influence will limit reforms it also guarantees stability. Economic liberalisation, meanwhile, is happening and demand for new infrastructure and, increasingly, for consumer products will be robust for many years. As a result, economic growth should remain at or above 7% - the fastest in ASEAN.