By Travis Gallton
The Daily Record Newswire
For years, Japan was considered the dominant Asian economic powerhouse.
Years of stagnant GDP growth, coupled with an aging population and increasing public health care costs, have left the country in disarray. A rising Yen has hit a 15-year high against the U.S. dollar, destroying competitive prices on Japanese exports.
Despite the stagnant times and currency concerns, fellow Asian countries Singapore and South Korea are beginning to flourish and appear to have a bright outlook.
Singapore’s free open market economy has seen growth mostly comprised of oil, consumer electronics, pharmaceuticals and tourism. It has a balanced mix of trade partners — Malaysia, Hong Kong, Indonesia, China and the European Union. Singapore’s government recently took precautionary measures to cool a warming real estate market to prevent a property bubble from forming.
Overall, the island has experienced one of the most robust years of economic growth following a disastrous downturn in 2008. The Singapore market index experienced a 22.5 percent gain in the past year ending Aug. 30. The S&P 500 Index, comparatively, was up 4 percent.
Singapore’s economy has the potential to become the fastest growing in 2010, and posted a 17.9 percent growth for the first six months of this year year, despite government expectations of a slowdown due to continued weakness in the U.S. and E.U. markets.
As is the case with any developing economy, Singapore focuses on innovation. The World Economic Forum’s recent global competitiveness report ranked Singapore third, behind only Switzerland and Sweden. Singapore has pumped billions into boosting research in clinical development and strives to improve productivity to stay relevant in a fast-paced, ever-changing world.
Another thriving tiger, the peninsula of South Korea, has been able to exploit the current global economy by exporting high-tech electronics and automobiles. Asia’s fourth largest economy has seen industrial production booming — up 20 percent from the previous year. The country has experienced superb GDP growth — at 7.2 percent over the past year — contained inflation and boasts a low unemployment rate.
Through the long term, South Korea has seen continued growth thanks to healthy trade with neighboring China and Japan. Given that the country is export driven, South Korea’s populous neighbors have enabled the country to become the eighth largest exporter in the world, and accumulate a healthy current account surplus. South Korea is benefitting from recent Chinese policy to let its currency float, making South Korea’s high-tech trade even more cost competitive.
The country has remained viable in the global landscape without sacrificing its national balance sheet, as the massive global slowdown has left many countries printing lots of money in an attempt to stimulate consumption. Where Japan has seen its public debt to GDP exceed 200 percent, Greece more than 125 percent and the United States approximately 63 percent, government spending in South Korea has remained modest, with a ratio of national debt to GDP hovering only about 25 percent.
Singapore and South Korea appear to have weathered the global slowdown, and coming out stronger and even more vibrant. As the global economy begins to recover, countries that focus on future innovation, have quality management, low national debt levels and improved productivity will become the best investment opportunities.
Keep in mind when investing outside of the United States that geopolitical risk should be monitored. Investors who are interested in learning more should consult a financial professional.
Travis Gallton is an analyst/portfolio manager for Karpus Investment Management in Pittsford, N.Y. He can be reached at (585) 586-4680.
