Executive summary
Asia will continue to be the fastest growing region in the world as new drivers emerge, providing greater investment opportunities and diversification for investors. In “New Asia”, as the gap between winners and losers widen, active management and local knowledge will be even more important.
Asia accounts for half of the world’s population and almost half of its GDP. It made up 50% of the global consumer class in 20201 and accounted for 55% of global internet users in 20212. The region is forecast to grow by 5% in 20233, making it the fastest growing region in the world.
As Asia consists of both high-income and emerging economies, new growth drivers such as digitalisation, supply chain realignment, technological innovation and regional partnerships will play out differently across the region, creating exciting opportunities for investors.
Digitalisation - It is estimated that 60 million people in Southeast Asia became online consumers during the pandemic4. Digital adoption is accelerating, spurred by the region’s high smart phone penetration rates, mobile-savvy youthful populations, heavy investments in digital infrastructure and supportive regulatory frameworks.
Supply chain realignment - Geopolitical tensions and the COVID-19 pandemic have led multinational companies (MNCs) to seek more resilient supply chain networks. Vietnam’s and ASEAN’s shares of US container imports have risen since the start of the US-China trade tensions. India has also benefitted from increased manufacturing demand from Apple.
Technological innovation - Asia’s relatively youthful and technologically savvy population as well as its strong work ethics have helped to drive innovation in the region. The 2021 Bloomberg Innovation Index ranks South Korea at 1, Singapore at 2, Japan at 12, and China at 16.
Regional partnerships - Against the ongoing tide of protectionism, greater regional integration will be important to sustain the region’s growth momentum. Intra-regional trade within Asia and ASEAN is expected to rise as the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement (FTA) between the 10 ASEAN economies and its FTA partners, incentivises the rebuilding of supply chains in the region.
On the sustainability front, ESG corporate disclosures have improved in Asia. Research shows that Asian companies that are highly aligned to the EU ESG Taxonomy have been able to trade at a premium (~55% on P/E and 64% on EV/EBITDA terms) relative to their sector peer groups5.
Asia’s diversity helps to increase the diversification benefits to international investors. With the peak in global trade (as a % of global GDP) in 2008, the correlation of Asian markets to the US and European equity markets have trended lower, strengthening the case for an Asian allocation to global portfolios. Current valuations for the MSCI AC Asia ex Japan have corresponded to compelling market returns over the next 1-, 3- and 5-year periods.
We believe that Asia is on the cusp of a new growth era which potentially warrants a larger share in asset allocations and a more thoughtful consideration of other markets beyond the incumbents. In “New Asia”, the gap between winners and losers is likely to widen. Investors who have a good understanding of local nuances and can navigate each market’s unique landscape will be better positioned to add alpha.
This is a summary of the article “The case for Asia”. Please click here to read the full article or download the pdf for the entire report.
Look out for our 2023 Asian Expert Series on “New Asia” where we delve deeper into some of the growth drivers highlighted in this article.
Interesting reads
Sources:
1 Brookings. Defined as anyone earnings more than USD11/day in 2011 PPP terms.
2 Globaldata.com
3 IMF, World Economic Outlook Update, July 2022.
4 Nikkei Asia. COVID's striking impact on Southeast Asia's digital economy. November 2021.
5 A new era for ESG in Asia Pacific. Goldman Sachs Equity Research. February 2022.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).