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Analyzing Government Debt and Savings in Asia-Pacific Countries

David Ashworth

A Guide to Country-Specific ETFs in the Asia-Pacific Region

(Continued from Prior Part)

Government debt

We have chosen seven Asia-Pacific countries, three developed and four emerging, to look at in this series. We based our distinction between developing and emerging nations on index major MSCI’s (MSCI) classifications.

Among these seven economies, stocks from Australia, South Korea, Hong Kong, and Singapore, form ~37% of the Vanguard FTSE Pacific ETF’s (VPL) portfolio. Except for South Korea, stocks of other countries form ~87% of the portfolio of the iShares MSCI Pacific ex-Japan Fund (EPP). Stocks like Toyota Motor (TM), BHP Billiton (BHP), and Westpac Banking Corporation (WBK) are among the major holdings.

In the last part of the series, we looked at how these countries fare given their projected economic growth rates in terms of GDP (gross domestic product). Let’s now look at the status of government debt.

A look at the graph above will show you that Singapore has very high levels of government debt compared to its GDP. It carries nearly as much debt as its economic output. In fact, it is one of the most indebted nations in the world.

A slowing economy leads to its government borrowing higher quantum and borrowing more frequently to meet its obligations. A government may borrow more or comparatively frequently to stimulate a sluggish economy.

But apart from Singapore, whose finances need to be monitored, all other nations have a manageable debt-to-GDP ratio. Malaysia leads the emerging markets pack with a debt-to-GDP ratio of 57% for 2014.

Savings rate

Except Australia and Hong Kong, the savings rate for all other countries is about 30% and above the country’s GDP. Though Singapore’s government debt is very high, so is its savings rate, which was ~47% of the GDP in 2014.

A high savings rate means people have a substantial amount of money to either invest or spend later. This savings capacity may also imply an unwillingness or inability to spend though. But for the nations under review, especially the emerging ones, a high savings rate generally says there are a host of consumers who can be tapped for discretionary products.

After a brief review of three macroeconomic metrics, let’s dive straight into instruments that can help you invest in these countries.

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