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Investing in Asia - November 2015

    Investing in Asia - November 2015


    Yet fears that this growth story is over have caused concern among investors, with global markets declining dramatically in August as a result.

    The annual 7 per cent GDP growth figure published by China’s officials has been called into question, with markets suspecting a growth rate of 4-5 per cent may be closer to the truth.

    “As the largest economy in Asia and the second largest in the world, China is definitely the main engine behind Asia’s growth story,” says Matthew Sutherland, head of product management in Asia for Fidelity International. “Even if the growth rate of China GDP is slowing, and even if you disbelieve the published headline number, there is little doubt the economy is still growing substantially faster than all the developed economies and most non-Asian emerging economies.”

    Crucially, he believes the quality of growth in China is improving and “shifting up the value chain”.

    However, there is more to Asia than China, with Japan and India both continuing to attract investors as the former improves its corporate governance and the latter waits for the reforms of prime minister Narendra Modi to kick in.

    “Japan, the next biggest economy in the region, is on the verge of reigniting an inflationary and consumption mindset under Abenomics. The jury is still out, but if it is successful, a resurgent Japan could be a huge driver for the region and the world,” Mr Sutherland suggests. “Meanwhile India, the next biggest economy in the region, is already growing faster than China.

    “Unlike China, it can still generate high levels of growth from infrastructure spending, and has a demographic tailwind from its growing population.”

    For opportunities in Asia beyond the three largest economies, investors could consider the Association of Southeast Asian Nations, or Asean. The group formed in 1967 and comprises 10 member states including Indonesia, Malaysia, Philippines and Thailand.

    Andrew Graham, portfolio manager of the Martin Currie Asia Unconstrained Trust, explains: “These 10 countries will formally call themselves a single market at the end of the year, becoming the seventh largest economy in the world. They all share enormous growth potential, and the move towards a more collaborative, EU-style economy will present huge opportunities for companies that can look beyond the intricacies of integration and exploit the potential benefits of an expanded market.”

    There is another benefit to investing in the less developed Asian markets. Emily Fletcher, co-manager of the BlackRock Frontiers Investment Trust, has positioned her portfolio to be overweight Asia in the past year on the basis she is seeing opportunities in such frontier markets as Bangladesh, Sri Lanka and Pakistan.

    She points out: “What’s interesting about these frontier countries is they are uncorrelated to what’s going on in global markets and therefore much more immune to what’s going on in broad developed markets.”

    Ms Fletcher goes on: “In Bangladesh, what we’re seeing there is ongoing strong fiscal balances. Bangladesh continues to build international reserves, which means there is [an] appreciatory pressure on the currency. At the same time, from a bottom-up perspective, we are finding very interesting opportunities.”

    Robert Horrocks, chief investment officer of specialist asset manager Matthews Asia, acknowledges China as the driving force behind Asia’s growth.

    “But for Asia, the forces driving real growth are savings, reforms and productivity,” he adds. “While monetary mistakes can distress the markets, long-term growth in Asia should ultimately be decided by the drive for self-improvement and the business savvy of its citizens.”

    Ellie Duncan is deputy features editor at Investment Adviser


    What impact will a US interest rate rise have on Asia? Robert Horrocks, chief investment officer at Matthews Asia, says a rate hike will add to deflationary pressure:

    “Reactions to this uncertain economic backdrop have been quite fearful. In the Association of Southeast Asian Nations, Malaysia and Indonesia have taken the lion’s share of the negative sentiment – justifiably so because of their dependence on commodities.

    “However, the ability of Asia’s markets to withstand the deflationary pressure lies in their ability to reflate by stimulating their economies through fiscal and monetary policies. For example, China has made a slight move towards a more reflationary environment, moving counter to the rest of the Asian countries. As opposed to other emerging markets, the vast majority of Asia does not rely on foreign capital. While some countries such as Indonesia and India have modest current account deficits, most other Asian markets boast current account surpluses. China, Korea, Singapore, the Philippines and Taiwan have inflation rates at or below 2 per cent and current account surpluses. These countries can spend and stimulate their economies, largely through fiscal spending, but I believe there is room for monetary stimulus, too.”

    In this special report


    Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

    1. Japanese corporate governance reforms have included a number of measures including the launch of what index?

    2. The market capitalisation of the Shanghai and Shenzhen stock exchanges exceeds what figure in renminbi, according to Greg Kuhnert?

    3. The S&P Pan Asia Bond Index has expanded more than threefold to what level (in US dollars) since its inception?

    4. In what year did the Association of Southeast Asian Nations, or Asean, form?

    5. In a recent speech Stanley Fischer, vice chairman of the US Federal Reserve, discussed the transition phase for emerging Asia at the 2015 Asia Economic Policy Conference. But where was the conference held?

    6. The IMF recently announced it will put forward the renminbi (RMB) for inclusion in its basket of reserve currencies, the Special Drawing Right (SDR). But who specifically that “China’s RMB is ultimately destined to replace the US dollar as the world’s primary reserve currency”?

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