Assessing the Growth in Sophistication of SEA Exports and Impact on Equities

As of June 2022, a shorthand approach to assess the growth in sophistication of Southeast Asia’s exports suggests exports from Indonesia, Malaysia, Singapore, Thailand, and the Philippines mostly have flat-lined or declined in sophistication since 2011; Vietnam’s exports, however, have increased materially in sophistication and have outpaced the growth in sophisticated exports from China.  The relationship between the growth in export sophistication and equity performance over this period, however, is unclear from this work.

  • In lieu of a more detailed assessment of the sophistication of Southeast Asia’s exports, such as that devised in Rodrik (2006),[1],[2] we use export value per capita as a shorthand approach to estimate the sophistication of these exports and their change over time.[3]  Similar to the implications of GDP per capita—GDP per capita should increase as an economy becomes more advanced—we would expect a country’s exports to generate greater value per capita as its exports become more advanced.
  • Similar to Rodrik, we find China’s exports to be sophisticated, and our results show China’s exports to have increased in sophistication more than those from Indonesia, Malaysia, the Philippines, Singapore, and Thailand, which is consistent with Rodrik’s general findings vis a vis China’s export sophistication.  Vietnam’s exports show an upward trend in export sophistication, running counter to the trend in other Southeast Asian economies.

Cumulative Percentage Growth in Exports per Capita, 2002 – 2020

The relationship between an increase in export value per capita and local equity market performance is unclear.  The Jakarta Stock Exchange Index, for instance, easily is the top performing local index over the reviewed period—gaining more than 800% than the next closest index, the Vietnam Index—despite having the third lowest cumulative increase in export value per capita.  Similarly, China’s Shanghai Composite generated a lower return over this period than many of the indices, despite having the second greatest increase in export value per capita.

Cumulative Percentage Change in Local Equity Markets, 2002-2020

  • Using local equity index values at the end of the year and annual exports per capita, we find no statistically significant correlation between these variables when evaluating the data over the same period.  However, when applying a one-year lag to the exports per capita data—conceptually, this is reasonable given the forward-looking nature of markets—we find a statistically significant relationship between the variables in all but China and Vietnam; nonetheless, as China and Vietnam are the two markets with the greatest percentage increase in export value per capita, the ostensible correlation identified for Indonesia, Malaysia, Philippines, Singapore, and Thailand may be spurious.

Correlation Between Annual Change in Export Value per Capita and Annual Change in Equity Index Performance, 2002-2020

No Lag
 Indonesia / JSXMalaysia / KLCIPhilippines / PSEiSingapore / STIThailand / STEVietnam / VNIChina / SSEC
Degrees of Freedom:  16
T-distribution Critical Value:  +/- 2.12
One-year Lag on Export Value per Capita
 Indonesia / JSXMalaysia / KLCIPhilippines / PSEiSingapore / STIThailand / STEVietnam / VNIChina / SSEC
Degrees of Freedom:  15
T-distribution Critical Value:  +/- 2.13

A more thorough review of Southeast Asia’s exports, such as applying the methodology identified in Rodrik’s 2006 paper, could provide greater clarity on their sophistication over time.  Further statistical analysis also could generate more meaningful insights between the relationship between export sophistication and local equity market performance.

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[1] Dani Rodrik.  “What’s So Special about China’s Exports?”  China and World Economy.  2006.

[2] Rodrik in 2006 found China’s export basket to be “significantly more sophisticated that what would be normally expected for a country at its income level,” based on an approach that measures the productivity level associated with a country’s export basket.

[3] Export data is sourced from the International Trade Centre and is from 2002-2020.  Population data is from the World Bank and is for those aged 15-64, which as the typical age of the working public should provide a more consistent denominator for the export revenue generated by the country’s workforce.

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