"...emerging markets will grow faster than the
developed world for decades to come."

Gideon Rachman, The Financial Times

Southeast Asia’s Internet Economy: On a Fast Track

Southeast Asia’s Internet Economy: On a Fast Track

Conditions have been ripe for Southeast Asia’s e-transformation, and COVID-19 has acted as an accelerant, according to Claus Born and Yi Ping Liao of Franklin Templeton’s Emerging Markets Equity team. They see three secular growth opportunities that stand out for investors:  e-commerce, fintech and gaming. Below is an excerpt from their new “Trends Reinforced” paper. 

COVID-19 has fast-tracked internet adoption in Southeast Asia, similar to how the SARS1 outbreak catalyzed digitalization in China more than 10 years ago. Conditions have been ripe for Southeast Asia’s e-transformation. Young and mobile-first populations, improving communication networks and affordable smartphones are among factors that have powered internet services in the region.

We see immense potential in Southeast Asia’s internet economy. Amid rapid innovation across the board, three areas stand out to us for the secular growth opportunities they offer.

  • E-commerce: The industry remains underpenetrated despite soaring sales. The proliferation of different business models has created scope for even traditional small businesses to participate in digitalization.
  • Financial technology (fintech): Underbanked and cash-reliant populations have reeled in an array of fintech companies. Many offer e-wallets as a gateway to access a wider suite of financial products.
  • Gaming: Successful games have found a global audience. Games are also evolving into social forums integrating chat functions and more modes of entertainment to boost user engagement and monetization potential.

Upcoming listings of fast-growing companies in these fields are likely to revitalize Southeast Asia’s equity markets, whose old-economy focus has come under the shadow of North Asia’s new-economy tilt. These listings could also offer diversification from widely held Chinese internet names. We believe that active investors like us, who can blend insights from North Asia’s internet journey with perspectives from our Southeast Asian research teams to analyze distinct local trends, could gain an edge in identifying the best opportunities in the making.

Readers in the United States can download the full paper here.

Readers outside the United States can download the full paper here.   

What Are the Risks?

All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. Special risks are associated with investing in foreign securities, including risks associated with political and economic developments, trading practices, availability of information, limited markets and currency exchange rate fluctuations and policies; investments in emerging markets involve heightened risks related to the same factors. To the extent a strategy focuses on particular countries, regions, industries, sectors or types of investment from time to time, it may be subject to greater risks of adverse developments in such areas of focus than a strategy that invests in a wider variety of countries, regions, industries, sectors or investments. Investments in fast-growing industries like the technology and health care sectors (which have historically been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments. Small- and mid-capitalization companies can be particularly sensitive to changing economic conditions, and their prospects for growth are less certain than those of larger, more established companies. China may be subject to considerable degrees of economic, political and social instability. Investments in securities of Chinese issuers involve risks that are specific to China, including certain legal, regulatory, political and economic risks.

Important Legal Information

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. This material may not be reproduced, distributed or published without prior written permission from Franklin Templeton.

The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not necessarily indicative nor a guarantee of future performance. All investments involve risks, including possible loss of principal.

Any research and analysis contained in this material has been procured by Franklin Templeton for its own purposes and may be acted upon in that connection and, as such, is provided to you incidentally. Data from third party sources may have been used in the preparation of this material and Franklin Templeton (“FT”) has not independently verified, validated or audited such data.  Although information has been obtained from sources that Franklin Templeton believes to be reliable, no guarantee can be given as to its accuracy and such information may be incomplete or condensed and may be subject to change at any time without notice. The mention of any individual securities should neither constitute nor be construed as a recommendation to purchase, hold or sell any securities, and the information provided regarding such individual securities (if any) is not a sufficient basis upon which to make an investment decision. FT accepts no liability whatsoever for any loss arising from use of this information and reliance upon the comments, opinions and analyses in the material is at the sole discretion of the user.

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1. Severe acute respiratory syndrome.

 


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