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

In 2012, Asia accounted for 29% of global GDP. This is projected to grow to 49% by 2050.

 

Source: World Bank January 2015, IMF World Economic Outlook, October 2015 
GDP= gross domestic product

China’s economy may be slowing, but expected growth of 6.5% in 2016 and 6.2% in 2017 remains decent by global standards. 

Meanwhile, India is zipping ahead with a growth forecast of around 7.5% in 2016.

Source: OECD, June 2016

Projected growth in 2016

 

Altogether, developing Asian countries are projected to grow 6.4% in 2016, ahead of the global economy’s 3.8% growth.

Source: International Monetary Fund (IMF), World Economic Outlook (WEO), July 2015

 

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.

Nine out of 10 of the world’s largest cities are in Asia

Largest cities in the world (2015)

 

Population (million)

Source: Demographia World Urban Areas. 11th Annual Edition 2015
For illustration purposes only

 

Increasingly connected

 

At the end of 2015, there were 2.5 billion unique mobile subscribers in the Asia Pacific. By 2020, almost three-quarters of the region’s population will be mobile subscribers. Mobile internet penetration will also rise to 74% by 2020, from 62% in 2015 as costs fall and infrastructure improves.

Source: The Mobile Economy - Asia Pacific 2016
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).

Source: The Mobile Economy - Asia Pacific 2016

Smartphone shipments to Asia will more than double to 970 million by 2018, from 470 million units in 2013. This growth benefits regional telecommunication services providers.

Shipments of new smartphones (millions)

 

Source: Lenovo, The Economist Corporate Network 2015. Figures for 2018 are estimates

 

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 for infrastructure development.

Source: The Business Times, June 2016

 

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 hit a record high in 2015, with deals worth US$1.16 trillion announced over the period.

Source: Thomson Reuters, Mergers & Acquisitions Reviews, Full Year 2015

Exposure to quality companies

We believe the best companies characteristically have strong core franchises and focus on doing one thing very well.

Asian debt (ex-China) has never been lower

 

Sources: CLSA, Factset, September 2016
Years with an “F” denote a forecast.

 

Asia has built up its defenses

Government finances are in better shape than the U.S. at the time of the Asian Financial Crisis in 1997.

Central bank reserves

(in U.S. dollars, billions)

Source: Bloomberg, July 31, 2016

Sources: Bloomberg, MSCI, August 2016

 

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.

IMPORTANT INFORMATION
PAST PERFORMANCE IS NOT AN INDICATION OF FUTURE RESULTS.

Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging markets countries. Concentrating investments in the Asia-Pacific region subjects the portfolio to more volatility and greater risk of loss than geographically diverse investments.

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.