The best opportunities in Asia lie in enabling aspirations and helping to build the modern region with its undoubtedly digital future. We support Asia’s green ambitions and its energy transition. We also want to be tech enablers and invest in the health and wellness revolution that’s coming. These themes all inform our long-term view.
The first half of 2023 was volatile. There are concerns around the higher-for-longer interest rate environment, the lacklustre Chinese economic recovery and the potential for a global recession – although these have been offset by China’s surprisingly vigorous reopening and a recovery in tourism. A moderation in commodities prices is also good news, and so too is the excitement surrounding artificial intelligence (AI). Asia manufactures the world’s tech, and the enthusiasm around this new market is already having a positive effect in the countries at the forefront of this revolution, including Korea and China.
China in focus
It’s important to take a closer look at China. Without more recovery momentum, the government’s policy will likely remain supportive. Post-Covid savings rates are high, and further government stimulus may be needed to repair consumer confidence and sustain the recovery.
Recently, some US and EU investors have asked for investments that are Asia and emerging markets (EM) ex-China. They are focused on the current geopolitical cooling towards China, but there’s also a demand to carve out China assets into a separate bucket in EM portfolios. China is the second largest economy in the world, offering unique and exciting opportunities. It therefore belongs in global portfolios, but homework is essential. China is a vast and ever-growing consumer market. Long term, we see the brightest future for firms that can adapt to changing regulatory frameworks and align with policy objectives such as digital innovation, green technology, affordable healthcare and improving livelihoods.
Of course, the rest of Asia stands to benefit from investors who want to diversify from China and seek opportunities across the region. These include supply chains in Indonesia, semiconductor expertise in Singapore, and software engineering talent in Malaysia. And don’t forget India, which is enjoying the early stages of a cyclical upswing. Its young and burgeoning population mean the country should enjoy fast and long-term growth.
Riding the digital wave
The continuing development of technology and the rapidly expanding AI wave will have implications for every part of the tech supply chain across Asia. There is already an impact, as seen in the booming demand for graphics processing units and the chips that process data and power generative AI for large computers. AI, IT, hardware and semiconductor companies in Korea and Taiwan have all seen an uplift. The semiconductor and consumer electronics segments should go from strength to strength.
We will also see the adoption of digital technologies in industrial sectors. Increased innovation will lower costs while improving productivity and competitiveness. For international investors, there are domestic nuances that separate Asian digital firms, in particular those in China, from overseas equivalents. Within the Chinese software sector, companies tend to work on a consulting basis, providing bespoke solutions for each client. This means lower operating leverage compared to the western ‘software as service’ model. However, it leads to stronger customer relations and consistent earnings.
Driving sustainability change
We never tire of explaining that sustainability is not an inconvenience, an added extra, or a charitable cause. It is the investment opportunity of our lifetimes and much of the tech, battery and green energy innovation that the world needs are happening in Asia.
Ambitious net zero goals have been announced (2060 for China, 2070 for India) and, while there will be tensions around the energy ‘trilemma’ – reliability, affordability, and sustainability – for now, all of the major Asia economies, including South Korea, Japan and China have committed to net zero.
Increasingly, Asia is where we find the solutions that will power the net zero world. Chinese companies make up 56% of the EV battery market, followed by Korea at 26%, then Japan. The US and Europe are well behind. With clear direction from governments around energy transition in transport, Asian companies will benefit as countries phase out combustion engines and focus on electric-powered public transport.
It’s exciting to invest in Asia, especially during such a time of growth and transition. Asia belongs in any investor’s portfolio to offer diversification and should be assessed over a cycle. Investing sustainably in Asia also means the opportunity to contribute to the change needed to get closer to a net zero world.