In our earlier article on MIST nations, we had highlighted the weakness in BRIC nations, China in particular, which was being viewed as a major force in the revival of the global economic engine. The latest East Asia and Pacific Monitor from the World Bank reveals that China's slowdown will accelerate. The bank revised its initial GDP outlook for the country. At the start of the year, the bank had forecasted a growth rate of 8.2% for 2012 and 8.6% for the next year. As of now, the revised figures stand at 7.7% for this year and 8.1% for the following. Concerns about a weak domestic demand and faltering exports, in response to a weak economic outlook of Europe in particular, have led to the recent decision.
China depends on exports and investments as drivers of growth, both of which are falling. We highlighted before that there exists a fundamental imbalance in the composition of China's growth, and it needs to devise policies that increase the proportion of domestic demand. Therefore, private enterprises should be encouraged, and the market share of state-owned companies should be reduced. Analysts predict the lowest full year growth for China in two decades. The World Bank report also notes that plans by local governments to boost the economy were at risk of funding constraints, as the real estate market cools off and revenues from sales of lands falls.
Forecasts for the East Asia region were also revised downward, from 7.6% this year and 8% for the next to 7.2% for the current year and 7.6% for the following year. Forecasts for Indonesia and Thailand remain intact, while they were revised upwards for Malaysia. Investors interested to play the upside in Malaysia can buy MSCI Malaysia Index Fund ETF (EWM). Earlier, in another article we pointed towards the resilience of Indonesia's growth owing to a strong domestic economy and rising investments, which have largely compensated for falling exports due to reduced demand in China and Europe. Philippines has also shown promise, with its revenue on the rise with the help of tax reforms and strong infrastructure spending by the government.
Markets in Asia were down, despite the promising unemployment figures from the U.S., with there being many concerns relating to Europe's debt burden. The Shanghai Composite Index ended 0.6% lower, whereas, the Hong Kong s Hang Seng Index was 0.9% lower.
Investors looking for growth during these troubled times should increasingly look for economies that are buoyant, rather than those which are feeling the brunt of the financial troubles emanating from the West. Indonesia, despite some of its internal problems, has attained record levels of investments and has developed a thriving middle class, which boosts domestic demand. In our earlier article, we highlighted specific ETFs and sectors in the country that are set to benefit from the coming growth. One such ETF is Market Vectors Indonesia Index (IDX). Investors can buy IDX to play the growth story of Indonesia. IDX is up around 8% in the last 3 months.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.