Europe's debt woes and resulting austerity plans coupled with the United States' congressional inaction have finally begun to take their toll on the global economy. The chances of a global recession have now increased and analysts have begun the task of downgrading their gross domestic product (GDP) estimates for a variety of nations. Overall, analysts now peg global GDP growth to fall to around 2.5%, with some areas like Europe experiencing negative economic growth. However, one rating agency's recent downgrade of an entire region could be exactly the catalyst investors need to add these nations to a portfolio. (For additional reading, check out Should You Invest In Emerging Markets.)

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Slowing Growth, Long Term Potential
The slow downs in the developed West have caused Fitch to begin downgrading emerging Asia. On the whole, the research group estimates that emerging Asia will expand by 6.8% in 2012, less than its June forecast of 7.4%. Fitch highlights slowing industrial production in key exporting nations like Taiwan or Singapore and rising wholesale inflation as the reason for the downgrades. In their report, Fitch increased its 2012 inflation forecast for the region to 4.9% up from 4.7%.

However, for contrarian investors the recent downgrade could be a blessing and an opportunity. The recent slowing growth predictions have caused a huge drop in Asian asset prices. Broad measures like the SPDR S&P Emerging Asia Pacific (ARCA:GMF) now sit closer to their 52-week lows and trade for single digit forward price to earnings (P/E). However, the long-term growth story of the region hasn't changed. A burgeoning middle class, increasing incomes and growing domestic consumption are hallmarks of the region. These strong internal growth catalysts will help propel the region forward as their developed market counterparts struggle with high unemployment, dwindling consumer spending and impending tax uncertainty. Even as Fitch was downgrading the region's growth, in its report it called emerging Asia's growth prospects relatively "favorable." In addition, the agency highlighted the continent's improving public finances, infrastructure spending and lower commodity prices as the key drivers for growth.

The Best Ways to Play
Given Fitch's recent downgrade of emerging Asia, those contrarian investors may want to use the recent weakness to add the region to a portfolio. Broad-based funds like the iShares S&P Asia 50 Index (ARCA:AIA) or Global X FTSE ASEAN 40 ETF (ARCA:ASEA) make ideal ways to add the entire region to a portfolio. However, some individual nations currently offer some unique risk/reward potential. Here are some picks.

After suffering through high inflationary pressures over the last few years, Vietnam saw these pressures dip for the fourth month in December. The nation is benefiting from rising wages in China as manufacturers begin to shift production to lower cost producers. The growth of Chinese "off-shoring" coupled with the nations incredibly young population make it an interesting frontier play in Asia. The Market Vectors Vietnam ETF (ARCA:VNM) is currently the only way to gain access to the region.

Both Taiwan and Singapore have seen industrial production dip over the last few months. However, Taiwan remains one of the world's biggest high tech manufacturers and Singapore continues to be Asia's financial powerhouse. Both the iShares MSCI Singapore Index (ARCA:EWS) and iShares MSCI Taiwan Index (ARCA:EWT) offer a way to play their continued dominance in those areas.

Finally, for investors looking for active management at a discount, the Templeton Dragon Fund (NYSE:TDF) is helmed by emerging market guru Mark Mobius and currently trades at a 11% discount to net asset value. Top holdings include Taiwan Semiconductor Manufacturing (NYSE:TSM) and Yanzhou Coal Mining (NYSE:YZC).

The Bottom Line
As the world economic growth begins to slow, some opportunities have risen for longer focused investors. Fitch's recent downgrade of emerging Asia is one such opportunity. With the long-term picture still in place, investors can use a drop in asset prices to load up on the nations in the region. (For more, read The Risks Of Investing In Emerging Markets.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    Top 3 UBS Global Funds for Retirement Diversification in 2016

    Learn about UBS's asset management business, past mutual fund performance and the top three UBS mutual funds to consider for retirement diversification.
  2. Mutual Funds & ETFs

    Invesco’s Top Funds for Retirement

    Here's a list of Invesco investments—retirement funds—that may work for you if you have the time to let them mature over the long term.
  3. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  4. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  5. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  6. Mutual Funds & ETFs

    Top 4 Royce Funds for Retirement Diversification in 2016

    Discover four of The Royce Funds mutual funds suitable for diversifying retirement portfolios that focus on investing in small-cap companies.
  7. Mutual Funds & ETFs

    Top 3 VALIC Funds for Retirement Diversification in 2016

    Learn about the VALIC fund family, its performance relative to its peers and the top three VALIC funds to consider for retirement diversification in 2016.
  8. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  9. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  10. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  1. How liquid are BlackRock mutual funds? (BLK)

    BlackRock, Inc. (NYSE: BLK) mutual funds are very liquid, as are all mutual funds. An investor receives payment for a redemption ... Read Full Answer >>
  2. Are target-date retirement funds good investments?

    The main benefit of target-date retirement funds is convenience. If you really don't want to bother with your retirement ... Read Full Answer >>
  3. Do mutual funds require a demat account?

    A dematerialized account enables electronic transfer of funds. The account is used so an investor does not need to hold the ... Read Full Answer >>
  4. How liquid are Vanguard mutual funds?

    The Vanguard mutual fund family is one of the largest and most well-recognized fund family in the financial industry. Its ... Read Full Answer >>
  5. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  6. Does OptionsHouse have mutual funds?

    OptionsHouse has access to some mutual funds, but it depends on the fund in which the investor is looking to buy shares. ... Read Full Answer >>
Trading Center