Before Covid-19, Asian economies had already become the engine of global economic growth, driven by a potent mix of rapid urbanisation, technological innovation and ever-improving governance, and in the process unlocking the huge potential of their massive populations.
But if Asia’s potential is without question, how we tap into it is another matter. For all the corporate and market progress, buying Asian companies directly remains challenging for western investors.
Here are five important considerations for investors before they take the plunge into this most volatile of markets.
1. Assess the real economic outlook
It is interesting to note that Asian economies seem to be emerging from the coronavirus pandemic in relative strength. According to the Organisation for Economic Co-operation the economic impact looks less severe in China, Indonesia and Korea than elsewhere in the world.
But medium term ‘bouncebackability’ is not all that matters. Indeed, an important driver for longer-term growth is the opportunity to grow Asia’s productivity relative to more developed economies. Mary McDougall has assessed the outlook for productivity in the region in this detailed article here.
2. Get to grips with geopolitics
The world stage is fraught with political risk as governments face the enormous challenge of restoring economies after the damage wrought by the coronavirus pandemic. For Asia, notably China, a rise in protectionism and a desire for local supply chains will hinder countries’ scope to export. Within Asia, there are a number of tensions bubbling, mostly around China’s borders, all posing geopolitical risks.
Mary McDougall runs through these risks in this article and you can listen to Megan Boxall and John Hughman discuss the full case for Chinese investment in this star-studded podcast.
3. Consider China’s dominance
China’s emergence over the past four decades from the wreckage of the Cultural Revolution to become a political, economic and technological superpower to challenge the US for the position of the world’s largest economy has been unparalleled in history.
Its growth, alongside the emergence of a new generation of mega-companies means it will almost always be a significant part of an emerging market investor’s portfolio. John Hughman assesses the outlook for China in this article.
4. Understand the outlook for China’s neighbours
Vietnam is a country investors should be watching for a number of reasons. It has handled coronavirus relatively well, despite its relative poverty and has been a major growth success story over the last five years. While the economy will be severely affected by a drop in manufacturing and exports this year because of the pandemic, coming into the crisis the country’s real gross domestic product (GDP) growth rate was 7 per cent. This has been fuelled by a boost in foreign capital. Find out more about investing in Vietnam in this article by Mary McDougall.
Over the past four decades Thailand has made remarkable progress in social and economic development, moving from a low to upper income country in less than a generation. And this has translated into strong growth for Thai equities. Over 20 years to 29 May 2020, the Stock Exchange of Thailand made a total return of 1,270 per cent or14 per cent a year. But can the country keep delivering? Leonora Walters attempts to answer that question here.
5. Examine India
An investor favourite as recently as 2017, India is a prime example of how volatile individual markets can be. Wide-ranging economic reforms helped Indian equities race ahead in 2017, but progress has since stalled.
The MSCI India index has fallen sharply this year, to the point where it is looking cheap. But it is worth considering whether the growth of the recent past can be reinvigorated, before jumping back into the market.
