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As Asia infrastructure booms, investment opportunities abound

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Nicky Loh | Getty Images

Asia's building spree is driven by an unflinching political resolve and unprecedented financial resources. Last year, major trade surplus countries in East Asia increased their net foreign assets by about $497 billion. And the latest data show that their foreign currency reserves have reached an astounding $6.7 trillion – two-thirds of the world's total according to some estimates.

A quick calculation shows that East Asia's capital exports of $497 billion in 2014 more than covered some $450 billion of deficits on goods and services in the rest of the world. [A reassuring news showing that the world's balance of payments is (almost) equal to zero.]

What are investors to make of all this? Here are some things to think about.

First, East Asia will continue to generate large trade surpluses and will remain by far the most important net capital exporter to the rest of the world for the foreseeable future. The region is the world's most formidable exports manufacturing hub. From proverbial sweatshops, East Asia has graduated to modern and virtually unbeatable competitors. Europeans – and Germans in particular – are complaining that East Asians are taking over their sanctions-stricken business in Russia.

Second, East Asia's import competing industries are becoming so powerful that they leave little room for foreign products. Small niches of specialty and luxury goods, entertainment and tourist and hospitality industries may be the only exceptions.

Protected by surpluses and reserves

Third, the region has developed its own highly sophisticated financial centers with a full range of retail, wholesale and investment services.

Fourth, the most recent events show that the new institutions of development financing will be supporting a wide array of region's industries – civil engineering, cement, steel, water supplies, transportation, telecommunications and healthcare – in gigantic, trillion-dollar, infrastructure projects over the coming years. In fact, it seems that this whole building program has been set up as a way of channeling some of East Asia's excess savings into the much-needed modernization of regional economies.

Read MoreHow bad is Asia's household debt?

Fifth, given East Asia's dominant position in global trade, its large external surpluses and enormous foreign currency reserves, it is absurd to keep harping on the area's alleged vulnerabilities to expected interest rate increases in the United States. Problems of rising dollar interest rates could occur only in economies having to import foreign capital to finance current account deficits. Indonesia is the only country in the region that might have such a difficulty. But the odds of financing problems actually happening are rather small: With sound economic policies, political stability and investment-friendly regulations, Jakarta can count on direct and portfolio capital inflows from a huge pool of region's excess savings.

Yes, East Asia can take care of its own – and then some.

Being the largest net creditor in the world economy, East Asia is increasingly projecting its economic and financial importance on a global scale. Just think of the waves made by the 21 Asian countries when they signed up for the creation of the Asian Infrastructure Investment Bank (AIIB) on October 24, 2014. Ambiguities, hand wringing and political soul searching ensued in the rest of the world. In the end, considerations of national interest prevailed. But it took the U.K. until early March of this year to decide to join this Asian project, prompting other applicants to bring the AIIB membership to more than 40 counties.

IMF's rare delight

As governments were rushing to meet the March 31 application deadline, the IMF's Managing Director Christine Lagarde came in with a statement that she would be "delighted" to cooperate with the AIIB, because there was a "massive" room for the two organizations to cooperate on infrastructure financing.

Ms. Lagarde was merely pointing out to complementarities of the new Asian bank with the IMF, the World Bank and the Asian Development Bank, whose funds are woefully inadequate to cover the needs of building and modernizing Asia's inexistent or crumbling infrastructure.

The AIIB, however, may just be the beginning of Asia's broader participation in development financing, balance-of-payments support and currency stabilization. Some of these initiatives are expected to take place in the context of the BRICS (Brazil, Russia, India, China and South Africa) group of countries, where, as was the case with AIIB, China and India will be playing the leading role.

One more development institution – The New Development Bank, which will probably be based in New Delhi, India -- is expected to come on stream later this year. Its activities will focus on BRICS countries, but it will also be active in the multilateral project financing in the rest of the developing world. More will be known about the bank's business objectives and administrative structure after the next BRICS summit in Ufa, Russia on July 9 -10, 2015.

This bank will be another – hopefully profitable – outlet for Asia's growing capital exports.

The BRICS-sponsored Currency Stabilization Fund is also being set up to provide balance-of-payments support to developing countries. This institution will benefit from Asia's large savings as China intends to contribute nearly half of the fund's planned $100 billion lending facility.

Investment thoughts

With its high savings and an unrivaled export manufacturing capacity, East Asia will continue to generate large trade surpluses, and to operate as the world's largest net creditor for the foreseeable future.

East Asia, therefore, has ample means to finance development projects that will unleash its prodigious growth potential.

That will keep opening up new investment possibilities in Asia and beyond. It will also boost earnings and profits of Asia's infrastructure companies. Europeans are running scared of the Asian onslaught: The planned Lafarge-Holcim tie-in is intended to cement (no pun intended) their defenses, while Siemens and Alstom are burying the hatchet, saying they need to work together to face Asian rivals in the transportation business.

Michael Ivanovitch writes about world economy, geopolitics and investment strategy: @msiglobal9