Rising with the Asian century

Rapid development; booming populations; increasing disposable income. The Asian century is upon us, bringing a level of regional growth last seen in the industrial revolution.

Living in a global, highly connected world means Australian investors have unprecedented ability to participate in the opportunities this growth may bring, both directly and indirectly.

Waking the dragon

The Asian century refers to the anticipated role that the Asian region will play in directing global economic growth and policy in the coming years – overtaking the US and European countries as key players.

The region typically focuses on China, India, Indonesia and South Korea. Though many investors have focused on China, especially since it overtook the US as the largest economic superpower based on GDP in mid-2014, there may be more opportunities now for growth in less established Asian countries, particularly given China’s ageing population. For example, Indian Prime Minister Modi has been successful in driving a number of policy changes influencing business development and growth in India over the past few years.

Projections from the International Monetary Fund (IMF) suggest that Asia is likely to account for almost half of the world’s economic output by 2025, with the combined output of China and India to exceed that of Canada, France, Germany, Italy, Japan, the UK and US1.

So how does Asia reach this point?

  • Government policies encouraging businesses to develop within countries, as well as encouraging foreign countries to set up shop.
  • Investment in infrastructure and encouraging business to support the population.
  • A rapidly growing population which increases the labour force and, in turn, demand and productivity.

The region is also expected to have the world’s fastest growing middle-class and is therefore likely to become the dominant consumer market. This flows beyond retail and grocery purchases to include energy, financial services and infrastructure needs.

Opportunities to grow with Asia

This rapid growth provides enormous opportunities for regions outside of Asia in a variety of ways, with the key focus on helping Asia meet demand in terms of:

  1. resources including energy, raw materials, food and water
  2. consumer goods such as cosmetics, medicines, vitamins
  3. infrastructure - from building to technology
  4. project expertise and training
  5. education services
  6. services ranging from health care to financial services
  7. luxury goods (as disposable income increases)
  8. tourism
  9. banking

Companies, and countries, that can tap into meeting these needs will be best positioned to grow economically through a vastly growing consumer base.

The increasing growth of urban areas in these countries will also see employment opportunities for foreign and local workers, as businesses grow and flourish to meet population demands.

Accessing Asia in your investments

Accessing this growth is not restricted to setting up a company in Asia, there is a range of other ways to invest. In fact, it’s likely that most investors are already exposed to Asia without realising.
Asia can be accessed in several ways.

  • Directly through shares in Asian-based companies, holding currency or even property where laws permit. Buying shares on foreign exchanges can be complicated and it might be helpful to discuss your options for doing this with a financial adviser.
  • Indirectly through Australian or global companies that access Asian markets through their products and services or through managed funds and superannuation funds that might include broad based Asian exposure from share ownership to investments managed by Asian-based fund managers.

Indirect access may be an inexpensive and less risky option compared to direct access given that the Asian region is still developing and experiencing volatility.

A global approach to Asia

Stepping beyond investments, many countries are also looking at their strategies for working with the Asian region in the coming years. Australia’s approach is no secret with Asian growth dominating government policy and media headlines. Depending on the success of this approach, the growth of the Asian region may flow through to Australia in more ways than expected.

There are still complexities and struggles across the Asian region with issues in North Korea one of the challenges currently playing out. Exposure to Asia is not a short-term boost but rather a long-term measure with a range of risks politically and economically to understand and evaluate. History tells us that markets are unpredictable, and Asia may not reach its full potential but either way, it should not be disregarded in looking to the future.

1. International Monetary Fund, Data Base, World Economic Outlook, GDP, 2014.

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This information is current as at 20 November 2017.
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