We set up our first office in Asia in 1992. From humble beginnings with one member of staff working out of a small Singapore shophouse, today we have 105 investment professionals operating across nine markets in Asia Pacific. ¹ This evolution extends to our investment process and the lessons we’ve learned about the businesses and markets in which we invest. So, what have we learned in the past three decades?

A region transformed

The pace of Asia's development into an economic powerhouse continues to astound. By 2040, it is forecast that the region will account for 40% of global consumption and 52% of global GDP. Within 10 years, it’s estimated that 60% of the world’s middle classes will live in Asia. The region boasts over half (2.3 billion) of the world’s internet users.² The list of milestones just keeps on coming.

Asia’s resilience

Investing in Asia’s fast-growing markets has certainly been stimulating over the last 30 years. We’ve been active through the 1997-8 Asian financial crisis, the ‘dotcom’ boom-and-bust from the late 1990s, the 2003 SARS outbreak, the 2008-09 financial crisis and largescale quantitative easing, and the Covid-19 pandemic.

Asian markets have endured. Many emerged stronger. The Asian crisis and the capital discipline it imposed on governments and corporates laid the foundations for subsequent growth. The 2008 crisis had a limited impact on Asia.

These market upheavals have served to underline the value of applying a quality-focused investment approach. We’ve long maintained a preference for companies with healthy balance sheets, sound debt ratios and good earnings potential. Experienced and capable management teams are a must. Crises only accentuate these virtues.

They also underscore the benefits of having a local presence to provide first-hand insights. We’ve learned to appreciate the political, economic and cultural individuality of each Asian market. By engaging with companies, we’ve fostered deep and long-lasting relationships across the region. This trust has proved invaluable during market sell-offs. It has given us the confidence to hold on to certain stocks even as most investors are selling. This long-term perseverance continues to serve us well.

A centre of innovation

Innovative and disruptive technology are creating tremendous opportunities. It’s a dynamic sector. Asian companies are now at the forefront of transforming the global landscape. In the decade to 2020, Asia accounted for 52% of global growth in technology revenues and 51% of worldwide research and development spending. Asian firms also filed some 87% of global technology patents.³

Asia is no longer seen as the world’s factory – but as a primary hub for innovation. It now leads the globe in areas such as e-commerce, 5G, gaming and social media. For example, social media app TikTok has twice as many users as Twitter. Technological innovation is also cutting costs sharply as the world readies for a lower-carbon future. Asia is a leader in automation technology – the next leg of industrial growth. This underscores how fertile Asia is for active investors.

Covid-19 – reshaping the landscape

Covid-19 has driven a need for new thinking among governments, citizens and investors the world over. Asian policymakers have provided unprecedented support for economies, businesses and workers in the region. But today, governments are asking companies to do more than just make a profit; they also need to provide a social return. Investors must understand how a firm’s operating model aligns with the needs of a wider range of stakeholders.

Supply chains are changing, too. The ‘just-in-time’ model – prevalent in areas such as car manufacturing, electronics and fashion – faced huge strains during lockdowns and quarantines. Many supply chains proved brittle. Now more cautious businesses are moving to a ‘just-in-case’ model. That is, when a firm orders more raw materials than it needs and/or produces more products than it thinks it might sell.

Trading relationships have been reshaped against an evolving US-China rivalry. Continuing to focus on Asia’s relationship with the West risks overlooking the importance of regional trading hubs. The 10-nation Association of Southeast Asian Nations (Asean) now resembles a single market of 625 million consumers⁴. Thailand has become a trading hub for a group including Cambodia, Laos and Vietnam. Investors should be aware of these shifting dynamics.

The rise of sustainability and ESG

We are witnessing the growth of environmental, social and governance (ESG) awareness in Asia, which is having a marked influence on decision-making. For years, Asia focused exclusively on the ‘G’. However, as companies and investors came to realise the value of ‘E’ and ‘S’, the discipline of ESG analysis has spread. Asian policymakers are embracing a sustainable agenda. China and India have pledged to hit net-zero carbon emissions by 2060 and 2070 respectively.

From the very start of our journey, ESG considerations were fundamental to how we invested. ESG analysis helps us to understand how a business operates and assesses risk. It allows us to develop a rounded understanding of a company and its management, enabling us to gauge if an investment risk is priced appropriately.

What does this mean for investors?

We see abundant opportunities to invest in Asia. True, the higher interest-rate environment and expected economic slowdown do pose immediate challenges; however, much of this is already in the price. The MSCI Asia ex Japan index is currently trading at 11.7x forward P/E (price-to-earnings ratio), which is more than one standard deviation below the five-year average of 14.5x.⁵ With valuations reaching multi-year lows, there could be more compelling opportunities here versus much of the developed world.

Further, Asian companies – with their technological edge and supportive political and economic backdrop – will be integral in steering the global agenda for change. This creates openings to invest in the innovative firms of tomorrow. In short, we believe the outlook for Asia looks stronger than ever. Roll on the next 30 years.