Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
The economic potential of Asia is well known and acknowledged but the region still has a modest share in investor portfolios. However, Asia is undergoing a digital transformation with rising technological companies and better connectivity, which global businesses are now taking advantage of. Eastspring Investments in a recently published whitepaper “Asia 2.0” talks about the diverse opportunities for investing in Asia stemming from growth and change.
“As global growth slows, Asia remains a high-growth region where the movement from traditional bank lending to capital market financing continues. Asia offers deep and well-developed markets as well as less mature markets, each presenting its own set of unique opportunities,” writes Bill Maldonado, Chief Investment Officer at Eastspring Investments.
The whitepaper discusses the transformation aspect of Asia and the opportunities that will emerge for investors. Based on a survey by the asset manager, businesses consider India to have the highest potential for transformation opportunities, followed by China, Indonesia, Vietnam and Japan, among others. Eastspring first talks about the prospects within Asia and then takes a deeper look into the opportunities in nine major markets.
Investing in Asia’s transformation
The pandemic, geopolitical worries and the global economic slowdown have put a strain on supply chains, and as Asia undergoes a significant shift, businesses are rebalancing their footprint. “Asia is already a very important player within global and regional supply chains. In 2010, the region accounted for 37% of global exports, amounting to $7 tn which subsequently grew to $8.9 tn in 2020. By 2030, Asia will account for 42% of global exports,” says Maldonado.
On the other hand, consumer expenditure in the region is on the rise, and this trend is expected to continue. Eastspring Investments says that Asia’s financial markets provide a gateway to tap into the region’s growing economies, exports and consumer wealth.
“Asia’s uniqueness and potential stems from connectivity being at the heart of its transformation. Over the years, Asia has strengthened intra-regional and global trade links, and is now well connected to major economies both within the region and outside,” as per Eastspring Investments.
So how is the transformation in Asia taking place?
There are three key dimensions as identified by Eastspring — economies, sectors and enablers. The asset manager appraises the economies section from the thematic lens. It says that China, India and Japan are economic powerhouses, South Korea and Taiwan are East Asia cornerstones, Hong Kong and Singapore are financial hubs, Vietnam and Indonesia are emerging players, and Malaysia and Thailand are regional contenders.
But why are businesses looking at Asia for expansion and transformation opportunities? Eastspring survey finds that expanding and evolving the consumer base is a key reason, while faith in the region’s sustained economic growth is a close second. Under the sectoral transformation aspect, Eastspring says that there are opportunities in traditional as well as new economy sectors.
Existing manufacturing practices are evolving, healthcare is undergoing a transformation, whereas financials are seeing rapid digitization. On the other hand, rising internet penetration is enabling the digital economy, EVs are selling like hotcakes and renewable energy is likely to see massive investments.
Lastly, talking about the enablers, the investment management firm says the transformation in Asia will be supported by key enablers — expanding physical and digital infra, educated and skilled workforce, the improved operating environment for businesses, government policies and incentives, enhanced technological capabilities, greater connectivity and access to markets.
Key consideration when investing in Asia
“Asia’s diverse equity markets and its growing bond universe provide significant room to create bespoke multi asset solutions that can meet the needs of different investors,” says Craig Bell, Head of Multi Asset Portfolio Solutions, Eastspring Investments.
The investment management firm mentions three steps for investment consideration. Namely, develop an understanding of Asia’s complex and diverse markets, define needs and constraints and determine implementation and strategy.
Market-wise perspectives
Coming to the country-wise analysis, Eastspring says that consumption and innovation are key defining features of China’s transformation. “As China transitions to higher quality growth, it will continue to boost innovation to facilitate domestic substitution in both software and hardware,” says Paul Chong, Portfolio Manager, Eastspring Investments.
Within China the key sectors to keep an eye on are renewable energy and healthcare, apart from the EV supply chain, consumer sector and advanced manufacturing.
Eastspring says India is a rising economic power and it is enhancing its infrastructure and upskilling talent to drive growth. “India has reached a stage where it is too big to ignore – both economically and in terms of market opportunities for investors,” as per Anand Gupta, Portfolio Manager, Eastspring Investments.
The two key sectors to watch out for in India are digital economy and renewable energy.
Next up is Japan, which is undergoing a transformation from digitalisation and will give rise to opportunities in areas such as fintech, digital payments and industrial automation. “Japanese corporates have significantly improved their underlying profitability in recent years, yet this hasn’t been fully recognised by international investors and Japanese stocks are currently cheap versus other developed markets,” Oliver Lee, Client Portfolio Manager, Eastspring Investments. The investment management firm believes the two key sectors for Japan are manufacturing and financials.
In Taiwan the key sectors are semiconductors and manufacturing, in South Korea its renewable energy and EVs, in Malaysia its semiconductors and manufacturing, in Thailand financials and food and beverage companies are expected to grow, Indonesia is looking to develop and integrated EV supply chain while promoting greater financial inclusion, and lastly, Vietnam has opportunities in the financials and consumer goods sectors.
