Seizing Asia’s investment moment
While global investors for years were conspicuously US-centric, over the past decade they have come to focus on the global bookends (the US and China) as twin engines of global growth. And in a world short on growth, their focus also continues to recognize the tremendous opportunities throughout Asia.
The pandemic is just the latest reminder of Asia’s outsized impact on the rest of the world. Global supply chains revolve around Asian factories and logistics, which, during lockdowns early in the pandemic, meant intercontinental supply snarls. Those supply chains increasingly encompass world beating technology as well. Close to a billion workers in China and India have joined the global workforce, Taiwan leads the world in semiconductor process technology, ASEAN nations have witnessed rapid growth. As such, demand for certain products, such as commodities, agricultural products, and luxury goods, has now become so tethered to the region that acute knowledge of Asian trends is a must to effectively assess sectors as wide-ranging as metals and mining, consumer discretionary and staples, and semiconductors. Clean energy opportunities, which are part of our “energy evolution basket,” have Asian footprints, too – the biggest electric vehicle (EV) battery makers, for example, are in Asia (dominated by China, Korea, and Japan).
Asia is full of opportunities, and its fixed income markets continue to experience capital deepening. Asian companies and sovereigns form a significant component of several asset classes we follow and are key influencers in others. Two prominent dots on our radar that we think will influence market developments are China and global climate imperatives, which this report has discussed in depth.
Notwithstanding demographic pressures, Chinese policymakers are increasingly comfortable with a moderate growth target (i.e., quality over quantity) and are focused on more equitable growth as well as preventing excesses from posing risks to China in the longer term. Moderate growth in China is still world-beating. The focus is on enhancing productivity through technological innovation as the gateway to prosperity for its aging population. Labor productivity and urbanization have been key drivers. Secular trends in China, such as digitalization, rising wealth, and consumption, are firmly in place – and prudent consideration of the strategies leveraged to capture these enduring opportunities in China and emerging markets is needed.
Environmental, social, and governance (ESG) concerns now influence most investment decisions and are propelling investments in cleaner processes and procedures. Again, this trend circles back to Asia, not least because of its burgeoning EV industry, but also because the region will be one of the most heavily impacted by climate change. Another reason is the significant room for improvement on all three ESG components in the Asian asset classes we follow. The transition to renewables, new environmental regulations, and national-level emission reduction pledges are encouraging, albeit uneven, measures to narrow the lacuna between problem and remediation (China and India remain top 10 carbon emitters). We see a compelling multi-year opportunity in this ESG delta for discerning investors. While starting later, China is now seeking to achieve peak emissions by 2030 and carbon neutrality by 2060. This 30-year objective from peak to neutral compares with 60 years in Europe and 45 in the US, should all these countries achieve their stated objectives.
Having invested in Asia for a long time, what’s notable is how quickly change occurs. In this dynamic market, it is imperative to remain close to the ground, gather high-quality data, and remain highly flexible.
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