The Rerise of Asia: Those Who Read History Too Much Are Ensured To Repeat It

Coastline Photo: My Thuy International Port (under construction).

As we are in the thick of Q2 and half-year update reports for companies around the world, it’s a suitable time to pen an update reflecting upon the status of the global economy via a bifocal approach — an example from the West, as well as the East.

This article first brings pause, as it unsettles basic economic tenets that we for a generation have come to accept at a default: London, New York, Frankfurt; these are supposed to be 3 impenetrable citadel economies — indeed, bastions of the global economy. Those who have doubted the primacy of these 3 financial juggernauts have historically had their shirts handed to them in the process.

Yet, both physical tremors from California as well as financial tremors from places such as London and Frankfurt have been increasingly been challenging these pre-established assumptions. One news article that urges reflection is the following: https://www.zerohedge.com/news/2019-07-27/london-bust-greenwich-real-estate-sales-plunge-20-year

In this article, not only is the short-term spectre of underperformance in London real estate fretting investors, dropping by -4.4% in the first 6 months of 2019, but structurally London real estate prices are becoming unsettling: the pre-established notion that foreign money will buy up the slack in the market has steadily been decreasing over the last 5 years. New build sales of London real estate 5 years ago had accounted for approximately 80% of new sales- with foreign investors basically acting as a stopgap for London real estate prices. In 2019, however, foreigners have only showed up to back 40% of real estate. That extra slack is being taken up by British themselves. Against an already high watermark for London real estate prices, the weight of the extra burden is starting to creak on Londoners’ shoulders.

Meanwhile, in Germany, the prospect of Deutsche Bank and its dizzying array of derivative exposure linked to systemically major banks, is also starting to creak in Frankfurt. The prospect of outright nationalization is becoming a more and more prescient forecast by market participants, as DB looks at increasingly few options in which to paddle itself out of its debt-laden financial predicament.

Yet, when we look East, we have different dynamics occurring, and upon closer introspection, it does not just yield pause, but yields an outright shattering of preconceived notions of where today’s financial citadels actually are- and where they are shifting to.

While London and New York are increasingly being given the cold shoulder by Chinese investors, inflows are shifting to brighter prospects such as in Vietnam. The article here provides greater context, and reinforces old economic dogma originally from China. Namely, that two tigers cannot co-exist on one mountain. Indeed, investment flows will always go to a) the most promising destination in which capital will be best treated, and b) will always act as a kind of osmosis to remove outliers and abnormal economic conditions. Or in other words, that global capital never misses out on the next party. https://www.scmp.com/property/hong-kong-china/article/2147299/vietnam-its-low-property-prices-has-become-new-treasure

That party in 2019 has now come to Vietnam. Long underpriced even against regional real estate prices in Bangkok or Kuala Lumpur, average real estate prices in Vietnam’s two largest cities have only come to equal 14–18% of the average price of Hong Kong real estate. Nature never allows a vacuum for long, and this economic yawning gap, coupled by the close proximity to Hong Kong, Macau, and Guangdong based assets, surely would not allow such an economic inequality to remain. Hence, economic osmosis is occurring, and economic inequalities are being rectified in the form of profit for investors. For long view investors, this should not be seen as a surprise at all. The gap between a price of a bowl of noodles in Hong Kong and Ho Chi Minh City is simply receding. The result? Economic progress- and increased standards of living for both investors and the population of Vietnam. This of course unfolds over a long period of time, which can be better understood once we first square away our minds with the concept that global wage equalization is occurring over a elongated span of time. More information on this can be found here: http://www.marketoracle.co.uk/Article42393.html

In this great process of equalizations, asset prices converge to the norm- with strikingly attractive profit opportunities. Just in Q2 of 2018 alone, there has been a doubling of land prices in seaside Danang- a result of Chinese and other foreign investors realizing the value of Central Vietnam- one of the events along the road towards the process of an equalization of asset pricing to regional norms. https://e.vnexpress.net/news/business/da-nang-seaside-land-prices-double-in-q2-3779143.html . Additionally, industrial real estate is booming, with the need for sophisticated infrastructure to handle drastic future forecasted loads for import and export. One key project underlining this is the My Thuy International Seaport in Quang Tri province in Vietnam, the sole connecting artery to the East West Economic Corridor, a key roadway for trade and investment stretching from Myanmar to Vietnam.

Above: Key Vietnamese seaports necessary for the economic development plan to 2030

Regional investors are grasping this with a much more rapid realization process, and are investing accordingly. Older investor participants remember the rise of Korea in the 80s, the rise of Taiwan in the 90s, and the rise of China in the 2000s. Not ones to miss out on the next investment boom, capital has been flooding Southeast Asia. In the case of Cambodia, land prices have been rising at a frenetic rate, and great fortunes are being made across the real estate space. Ethnic Chinese have been pouring into the boomtowns of Phnom Penh and Sihanoukville — and the Cyrillic signs of old along what used to be predominantly a Russian outpost is giving way to noodle shops, KTVs, and ritzy glamour. Previously ignored destinations, such as Kep, a small fishing outpost that only 10 years ago was dotted by a dusty dirt road has been transformed into a nascent tourism destination. It too, will follow the developmental pathway of Koh Rong, a Cambodian paradise destination already studded with 5 star hotels. Inevitably, Kep will follow this path as well. While these destinations certainly need infrastructure improvements as well, it is simply a matter of following the money to see what the result will be in this case as well: https://www.scmp.com/economy/global-economy/article/2170205/trade-war-will-drive-chinese-investment-asean-us500-billion

Tying it all together, it does seem to be apropos that a butterfly in Belarus flaps its wings, and a Vietnamese sandbox appears. Indeed, just this weekend, recommendations for Vietnam to follow in an arguably similar path to Belarus has been announced: https://vietnamnews.vn/economy/520304/viet-nam-to-become-asias-next-high-performing-economy.html. In order for digital transformation to occur, in the field of investments, transactions, data storage, data leveraging, and other sub-fields, it is being recommended by the Vietnamese government that a sandbox be put into place in order to “test-net” these digital transformation innovations. These are not idle words. Against the backdrop of what is forming as a multi-decade trend of substantial ongoing investment into Southeast Asia, the Vietnamese are aiming no less than to be a preeminent economic force to be reckoned with in the region. For those who said that South Korea could not develop in 50 years, that Japan could not be rebuilt, and that Vietnam is only going to be an underdeveloped coastline country with cheap manufacturing- there are some history books to read.

Above: Relex CEO Oksana Lozytskaya and Deputy Director Mikhail Eskin with Yuri Pripachkin, President of RACIB

During this economic journey of development, I am glad to see all of you with us as we continue to blaze new trails in the areas of crowdfunding, of investment, and of digital transformation of economies throughout. Thank you, dear reader, for reading, and I look forward to us reaching new peaks as the rest of 2019 unfolds!