Asia’s rising economic importance makes it impossible to ignore. The region is home to around half of the world’s population. It is growing twice as fast as the global average, and China is now the leading trade partner to the U.S. and the European Union. A huge domestic market, young workforce and growing middle-class population underpins the region’s vast potential. At the corporate level, the wide choice of quality companies makes Asia a stock-picker’s haven. The MSCI AC Asia Pacific Index has over 1,000 constituents across five developed countries and eight emerging-market economies.
Growth is moderating but remains solid
Asia’s consumer boom
Asia will host over 60% of the world’s middle-class population by 2030 and account for over half of global middle-class spending.Source: Kharas, Homi (2010). "The Emerging Middle Class in Developing Countries," OECD Publishing.
The Association of Southeast Asian Nations (ASEAN) represents a huge domestic market with rising middle-class wealth. The number of households with an income of between US$20,000 – US$70,000 (in 2005 purchasing power parity terms) is projected to double to 23 million by 2025.Source: McKinsey Global Institute Cityscope database; McKinsey Global Institute analysis, May 2014.
For illustration purposes only.
The mobile industry is a significant contributor to the region’s economic growth, accounting for 4.7% of GDP in 2014. By 2020, this sector will account for approximately US$1.8 trillion (5.9% of the region).
Reforms: slow but steady progress
Countries including India, China, and Indonesia are focusing on structural reforms for sustainable growth. The removal of costly fuel subsidies in India and Indonesia is helping government finances and freeing up spending for much-needed infrastructure, housing and healthcare spending.
Bridging the infrastructure gap
Asia has little choice but to spend on better roads, railways, power plants, air and seaports in order to grow. The Asian Development Bank (ADB) estimates that developing Asia needs US$8 trillion in the decade through 2020 to upgrade its infrastructure. Better quality infrastructure relieves supply side bottlenecks and lowers business costs. This is important for attracting long-term private investment.
Cement (building) and banking stocks (project lending) are good proxies forinfrastructure development.
Asia Inc. has healthy fundamentals
Asia is home to plenty of well-Run companies with strong balance sheets and cashflow. Tight controls on costs will help improve profitability amid tougher operating conditions.
Despite the challenging global outlook, merger and acquisition (M&A) activity involving companies in Asia Pacific was particularly robust in the first half of 2015, with deals worth US$561.8 billion announced over the period.Source: Ernst & Young, August 13, 2015. For illustrative purposes only.
1 Wall Street Journal, February 25, 2011.
Bloomberg data are for illustrative purposes only. No assumptions regarding future performance should be made. Forecasts are offered as opinion and are not reflective of potential performance, are not guaranteed and actual events or results may differ materially.