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Asia’s mega potential

World-beating companies, access to mega-trends and tech expertise lie at the heart of this dynamic region
Asia’s mega potential

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. 

At risk of stating the obvious, Asia is huge. Nearly two-thirds of the world’s population live in Asia, some 4.6bn people. More than half of the world’s so-called megacities, with populations of over 10m people, are on the continent. And three of the world’s five largest economies are in Asia – China, Japan and India. 

According to the World Economic Forum, Asia as a whole is expected to see its gross domestic product (GDP) grow this year to overtake the rest of the world combined, and by 2030 the continent is expected to contribute 60 per cent of global growth. And, importantly, it will be the source of a massive new middle class, adding the spending power of another 2.4bn well-off individuals to the global market for goods and services. 

It is hardly a surprise that many western businesses have been pivoting their focus to Asia in recent years. In 2019, broader Asian GDP growth far outpaced the west – developed Japan aside, which still chugs along in the low single digits, Asia’s three largest economies delivered growth well past mid-single digits. And while Covid-19 has put the brakes on some of its fastest-growing countries, in relative terms developing economies continue to grow far more quickly than their developed counterparts. 

While this is partly a virtue of their developing status, and the huge untapped potential within them, it also reflects significant structural reform of financial markets made within these countries since the 1997 Asian Financial Crisis. Asia now accounts for nearly four-fifths of the world’s 5,000 largest companies and, contrary to established views, are every bit as well run, if not better so, than their western counterparts.

The same is arguably true of the region’s government and economies. While western governments have floundered in the face of Covid-19 and unleashed economic devastation in their panicked responses, Asia’s largely well-organised response to the outbreak has left it on a much firmer recovery footing – offering investors a solid foundation for their portfolios at a time of great upheaval. For all the uncertainty we still face as a consequence of Covid 19, it seems more certain than anything that Asian economies could be the big winners from the crisis.

Indeed, Asia epitomises the so-called megatrends that are increasingly being used to frame how we view our changing world and where investors should be allocating their investments. Not only does it have large, growing and increasingly wealthy populations, but also the industries and companies to service their needs,  too, with leading positions across the region in technologies such as robotics, electric vehicles, semiconductor manufacturing, drones, telecoms equipment, social media and e-commerce. Its companies are, increasingly, world beaters. Take its leading internet company Alibaba, for example, which has more customers than Amazon. 

If Asia’s potential is without question, how we tap into it is another matter. For all of the corporate and market progress, buying Asian companies directly remains challenging for western investors. Nor is Asia free from risks – although Asia appears to have managed Covid-19 better, we should not forget that the virus also originated in the region and is not the first of its kind. 

We should also be ever-mindful of the growing geopolitical tension in the region as China looks to exert its dominance not just over its neighbours but as a global superpower. We should not underestimate the destabilising impact of its growing trade dispute with the US, and hope that it does not escalate into something worse. Even though Asia’s progress should mean it is an essential component of every investor’s portfolio, such risks, and the lingering memory of past crises, are a big hurdle to overcome to invest in the region. But they must be weighed against the many positives this dynamic region also has to offer.

 

Read all nine elements of our Investing in Asia guide here: 

Asia's mega potential

The outlook for Asian economies

Bull in a China shop

India: still a favourite?

Ambitious Vietnam

Thailand: home to oustanding buinesses

Accessing growth and income

Titans of the East

Tech, tariffs and political turbulence