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. Last Updated: 07/27/2016

Investors Look Past Asian Tigers

LONDON -- With the so-called tiger economies of Southeast Asia losing their sheen as stock markets plunge and political consensus fragments, many investors are looking further afield for the bull markets of the next decade.

Boasting growth of 9 or 10 percent over the decade preceding the early 1990s, Asian markets are maturing now and are finding it hard to maintain the heady returns for which emerging market investors are hungry.

Funds are turning instead to the nascent economies of Europe and Latin America for the next investor gold rush.

"Maybe Asia has lost its gloss a little," said Nigel Rendell, global strategist at HSBC James Capel in London.

"The Asian economies will find it difficult to sustain growth rates of 9 percent," he said, likening the economic catch-up in Korea, Singapore and Taiwan until about two years ago to the postwar recoveries in Germany and Japan.

So which regions are likely to see the next growth spurt that will provide the giant returns that pension fund managers, for instance, are seeking to meet the demands of the West's growing elderly population?

"We have been seeing more interest in East Europe over the last year or so," Rendell said.

He said people are scrutinizing "one or two of the Eastern European economies that have been through the doldrums -- Ukraine and Belarus -- though that growth spurt will not come in the next couple of years ... and maybe Russia itself, which has been through seven years of recession."

David Sneddon, global trading technical analyst at Credit Lyonnais, agreed. "People are looking for the next bull market to occur somewhere else ... and East Europe is coming into fashion. There are new markets and some wonderful gains to be made," he said.

Investors are also selectively looking at the recovery story in Latin America, following Mexico's 1994 financial crisis. Venezuela's stock market, for instance, has posted gains this year in dollar terms of 53 percent.

The gloom over Asia has been brought on by dramatic events in places like Indonesia and Thailand, which this year transformed itself into every fund manager's worst nightmare.

A glaring current account deficit, worries over inflation, sagging exports and a poor outlook for corporate earnings have piled in on top of a political crisis that culminated in the calling of early elections for Nov. 17.

The Thai stock market has been in bear mode since February, losing 300 points in a free-fall over the past two weeks alone.

Rioters took to the streets of Jakarta, Indonesia's capital, in July as anxieties mounted over the succession to aging President Suharto, and its stock market headed steeply south.

While the jury is still out on Malaysia, Sneddon said Singapore, too, is in the danger zone.

"It's just a matter of time before we see further steep falls in Singapore," he said. He speculated that the stock market may test levels around 1,900 within eight to 10 weeks from its present level around 2,135.

While Taiwan has been traveling sideways and some gains may still be made in South Korea, Hong Kong remains the notable exception to the general downward trend in the region.

"It's still in favor, and we're going to challenge all-time highs," Sneddon said. "It has good strength and has further to go."

If most of the tigers have lost their gloss, it is by no means the end of the Asian investment story. These economies will still post annual growth of 6 percent to 8 percent on average, far above the 2.5 percent seen in Western Europe and the United States.

China remains the great hope for Asia investors. HSBC James Capel foresees GDP growth at 11 percent, well above the official 10 percent forecast, and many fund managers still see rich pickings in Asia.

Guinness Flight is launching an Asian small companies unit trust. Abtrust's Asian Smaller Companies Investment Trust is keeping its largest exposure to companies in Thailand and Indonesia, though its allocations are highly selective.

"The economic outlook for the Asian region continues to be one of dynamic growth, and in such an environment opportunities for smaller companies are immense," Abtrust said in a recent statement.