In 2016 the economy in Japan encountered a 1 percent growth while both capital investment and exports expanded.  Does this mean that Japan is now the place for investors looking toward Asia?

Although there are some fears of Tokyo’s poor attempts vis-à-vis deflation, the GDP data indicated substantial growth – more consistent than at any time since 2013 of four consecutive quarters.  On the other hand, the annual figure remained lower than that of the 1.2 percent increase that was registered in 2015.  In addition, Japanese consumers are living cautiously.

According to Merrill Lynch Japan Securities Chief Economist Izumi Devalier, what Japan is currently encountering is an “export-driven recovery.”  Given the limits on private consumption, growth will be thwarted unless that changes.

Meanwhile, the PM, Shinzo Abe, in Dubai (following his recent visit to speak with Trump in the US), said that the UAE’s creation of an “oasis of tolerance” would be tantamount in future economic bolstering in the Asian region. With its recent launch of both the Ministry of Tolerance and the Ministry of Happiness, he believes such efforts will result in a broader platform for doing business, which will in turn benefit Japan.  And in Japan, given the benefits of their unique educational system (incorporating both self-discipline and mutual cooperation while encouraging the development of courage justice, and loyalty), he believes that “the Japanese government’s investment in education is one of the reasons for the rapid economic recovery that took place after the Second World War.”

With the Samurai ethos of courage, loyalty and justice practiced in Japan, it has the potential to become even greater in its economic platform.

According to a report set to be released at the upcoming Dubai Annual Investment Meeting undertaken by the Abu Dhabi Global Market (ADGM), within West Asia, figures for 2015 showed that the most FDI was received by Turkey and then the UAE.  Regarding this, vis-à-vis the UAE, CEO of the ADGM’s Financial Services Regulatory Services, Richard Teng said:

“ADGM is pleased to be part of the AIM 2017 that brings together local and international industry leaders, policy makers, and the investment community to share best practices, discuss industry developments and establish new partnerships. FDI is a key contributor of UAE’s  economic and investment growth.  As an international financial centre, ADGM works actively on efforts and initiatives that enhance UAE’s and Abu Dhabi’s strength as an attractive financial and investment destination for local and international entities.”

Meanwhile in Indonesia FDI figures were not as promising.    There was a significant deceleration in Q4 16.  That could lead to a thorn in the side at efforts being made at bolstering the growth of the economic expansion in the region.  It has been suggested that this might be the backlash of Jakarta’s political tensions due to this month’s regionals and Trump’s presidency and thus are concerned about prospects for emerging markets. Still there was a 2.1 percent increase in FDI in Q4 16 vis-à-vis Q4 15 but that was the smallest increase in the last five years.

Vietnam had better figures.  It encountered a 9 percent FDI increase in 2016, resulting in a record US$15.8 billion for that time frame.  And from the end of 2015, the manufacturing industry encountered a staggering 13.61 percent increase.

So overall FDI in the region is not faring too badly but political climates have to – as always – be handled.

Foreign investors who are seeking a strong investment region should look into Asian investment trusts according to some experts.  As the economies there mature, and the youth is indicating signs of good long-term prospects, the area is ripe for investments.

Despite the fact that in early 2016 Asian markets did it tough, things picked up during the rest of the year and the region encountered economic growth as well as company profits, both of which bolstered confidence in the Asian economy.   For people in the UK this fact has been particularly welcome. The Asia investment trusts delivered great returns, along with other overseas trusts, since when they converted back into pounds stirling, the returns are increased as the pound drops. As Head of Global Small Cap and Asia, Matthew Dobbs explained:

“Sterling returns have obviously been flattered by the weakness of the pound following the Brexit vote, but regional markets have made some progress thanks to the stabilisation of the Chinese economy, accommodative monetary conditions and modest expansion in economic activity. For 2017, we remain concerned that near-term stabilisation in Chinese economic conditions has been at the price of delayed economic restructuring and ultimately unsustainable credit growth. On a more positive note, global recovery would be helpful for the region, although subject to no material increase in trade barriers. With new leadership in Taiwan, the Philippines and, potentially, Korea, political developments will remain a focus.”

Furthermore, according to the Asian Development Bank’s recent report Asia’s $527 billion made it the top FDI destination in 2015.  And of the $1.76 trillion international FDI, almost a third went into Asia. The increase in Asia from 2014 was 9 percent.

Who is investing in Asia these days and why?  We look at a slew of investment opportunities in Asia and see which particular region is gaining popularity and what commodity.

First up, the largest (by revenue) airline in Japan, ANA, is looking into making more investments in other parts of Asia.  This is because it is trying to decrease its reliance on a slow-growing domestic market.

Numbers in Asia are looking good.  This year, the MSCI Asia ex-Japan Index returned a stable 5.3 percent. The JP Morgan Asia Credit Index measured Asian bonds at increasing 5.8 percent over the same time frame. In general, it seems that Asia is currently an attractive host for investments.  According to Chairman of the Singapore Economic Development Board, Beh Swan Gin, despite international uncertainties, Asia has kept up its perception of being a bright spark, thus attracting investment from all around the world.

Meanwhile, Singapore-based GIC has committed to investing $260.7 million in PT Nusantara Sejahtera Raya, a firm that runs the largest cinema chain in Indonesia.  this is indicative of the firm’s confidence in the long-term growth potential in the region.

 

south-asiaWhile South Asia was deemed the fastest growing economy in the world in 2016 by the World Bank, it has simultaneously been ascertained as being the least integrated, rendering its communities unable to benefit from intra-regional trade.  It seems that the countries within South East Asia are not reaping the benefits from the boom.

According to a report, South Asian Regionalism: What Hopes After SAARC Meltdown authored by the Sagar Prasai Foundation:

“Today, less than five per cent of South Asia’s trade occurs within the region, which remains the least integrated in the world. In comparison, intra-regional trade in the Asean region is around 30 per cent, the European Union around 60 per cent, and continental Africa around 12 per  cent. This stands as a regional loss ready to cut-short South Asia’s rare moment at the top rung of the growth ladder.”

It is further anticipated that the South Asia region will hold this spot in the international economic growth chart well into next year.  The consumer class is prospering, the young population is high at 1.6 billion and everything else looks good for them to continue being an attractive location for foreign investors.  Furthermore, the imports in 2016 matured at a remarkable rate of 7.2 percent.

Looking at some examples in the region we find that with the opening in Singapore of DHL Express, established firms are taking advantage of the benefits of the region’s fast-developing cross-border trade.  The facility – (located at Changi’s International Airport) – valued at $93million – is expected to be used to build up DHL’s ability to process the burgeoning number of mail and parcels being transported from and within the entire South Asian region.  According to Ken Allen, CEO of DHL Express, opening up this branch in South Asia’s hub is one of “the most recent in a series of global network investments made, and is the largest infrastructural investment in Singapore to date.  The country’s strategic location not only boosts our operational network capabilities, but also supports growing trade in the region aided by a stronger global economy.”

stocksIn the last quarter of 2016, when it comes to stocks, look toward Asia, implies Daniel S. Kern, CFA, CFP in a piece subtitled ‘Invest in Asian Small-Caps.’  US stock prices are relatively high, and those in Japan and Europe are much cheaper.  Watch out for political decisions as well as policies made by the central bank, as they too will have an impact on Q4 markets, most notably.  Globally this refers to the US presidential election, the Italian constitutional referendum and the Brexit fallout.

For those seeking guidance on such investments, Glen R. Wakeman, co-founder of LaunchPad Holdings LLC, having lived and worked in both America and the east, has expertise.  Launchpad has conducted many capital market transactions and raised substantial monies of new equity and lead large organizations in Fortune 10 companies. The firm also offers “an energetic ecosystem of advisors, thought leaders, accelerators and capital providers.”

Looking further into Asia, we find the Matthews Asia Small Companies Fund that makes investments into small firms throughout Asia (apart from Japan) which have the capacity for sustainable growth.  Its focus is the small firms which are connected to Asia’s domestic demand and have holdings in “consumer-related and healthcare sectors that benefit from rising consumer spending power and an aspirational population.”

Furthermore, given that the number of global macro strategists in Asia have become “markedly bullish on the region’s prospects,” experts have stated that this has rendered “investment conditions and the economic outlook in the emerging markets seen as the best in 25 years.”

legoIn the process of building a new factory in China, Lego is committed to making “considerable investments in capacity and capabilities” in Asia.  Meanwhile, Global Head of Alternatives and Group Head of Solutions for Aberdeen Asset Management, Andrew McCaffery, said that his firm is also looking into the region.  Looking to expand into alternatives, they are committed to making investments in Asia as well.

CMBCI (CMBC International Holdings Ltd.) made investments in CARRET Private Investments (Asia) Limited, the private wealth management firm.  One of the firm’s founders and current Managing Partner, Kenneth Ho explained: “CARRET has more than 50 years of history in creating long-term value for its high net worth clients, and we believe, that together with CMBCI, we can form a partnership to develop high end wealth management for Chinese clientele.”

Vis-à-vis the region’s infrastructure, it is anticipated that in the decade from 2015 to 2025, approximately US$5.3 trillion ($7 trillion) will be invested into the industry in Asia.  Ten years thereafter, it will be worth around 60 percent of global expenditure on infrastructure.   According to the 2016 Infrastructure Australia Report, by 2031 Asia will account for around two-thirds of the middle-class population around the world.

ChinaAmerican companies investing into Asia has long been a subject.  But now, at least in China, US firms seem to be zooming in on the food market specifically.  KKR – a global, alternative investment firm – over the last few years has started putting its money into “everything from chicken producers to dairy farms.”  The company – which speaks of its “industrialist vision” is seeing China’s food industry as a great opportunity.  This is because – in the words of the firm’s global head of capital and asset management, Scott Nuttall, it is “seeing opportunities in private equity that really don’t show up in the public markets.”  The firm is also aware of the entire Asian region’s new focus on environmental safety.

But there is somewhat of a challenge with making investments in the food industry in Asia, specifically China since the Chinese have so many people to feed. In a recent article in Business Insider by Rachel Butt, it was noted that: “the food industry there has to feed more than 1.4 billion people. The air pollution problem is so intense that officials have had to put caps on energy use.” So perhaps the food industry isn’t the best bet for US firms to make their investments.

China is considered a good, steady investment hub since it is believed that its economy is crucial to the overall emerging-market performance.  In other words, given its $11 trillion GDP it is approximately the same size “to the next 1- largest emerging markets combined.”  According to global CIO at UBS Wealth Management, Mark Haefele what this means is that even though its “growth trajectory has slowed over the past year, the deceleration has not been abrupt. The 6.7 percent GDP expansion in the second quarter provided additional evidence that government stimulus is stabilizing activity. And rising consumer spending is partly offsetting weakness in the ‘old economy’ industrial sector.”

Overall since China’s economy encountered a year-on-year growth of 6.7 percent in the second quarter (which was slightly higher than market expectations), this is indicative of an attractive investment location.

pharmaceuticalChina is about to get a biotech center.  With an investment of $350 million from Pfizer Inc., this facility – that will be located in eastern Hangzhou and will be ready by 2018 – is in line with other similar ones engineered by large pharmaceutical corporations to develop a presence in the second largest drugs market in the world.

According to IMS Health, the healthcare market in China is estimated to be valued at $185 billion by 2018. For FDIs to get the edge in the market, getting a head start on government and domestic regulations is very advisable.  And with this new facility it will help China’s goal of adding to the value of its manufacturing sector.

There has been a significant plummet since 2012 in drug market growth from 20+ percent.  This is due to the lack of demand for branded generics as well as Beijing’s attempt to push prices down to stop costs getting out of control.  Despite this, the projected spending for overall healthcare in the region by 2020 is $1.3 trillion.

In Singapore, ASLAN Pharmaceuticals is in the process of developing the pan-HER inhibitor varlitinib.  The US Food and Drug Administration Office of Orphan Products Development for gastric cancer just gave it orphan drug designation.  Given that gastric cancer is the third leading cause of cancer deaths around the world and the third most common cancer in Asia, this is an important step in disease control in the region.

jobsFor those considering making an investment in Asia, there are many different options.  According to Nitin Bajaj, portfolio manager of the Fidelity Asian Values Investment Trust, “There are over 17,000 investible companies across Asia – which is a lot of companies to research.”  Therefore, when it comes to making an investment choice, he says that “what matters to me for generating long term returns is to buy good businesses, run by capable and trustworthy managers at reasonable prices, when they may have short term cyclical or internal issues.” He adds that he “often look[s] for companies which will be able to thrive in what today may seem like very unfashionable sectors. For instance, child care centres or manufacturing of plastic toys or producing packaging tubes for toothpastes may not seem particularly appealing. But it is in sectors like these that I have found companies that have built deep competitive advantages, are run by able managements, generate a lot of cash and are available at attractive prices.”

Then there is the perspective of potential Asian FDI investors worrying too much about the climate there.  According to UBS Wealth Management’s Asia-Pacific investment office’s leader Min Lan Tan, “Asian credits are showing few signs of stress, with spreads at 320 basis points versus the height of over 800 basis points during 2008 and 2009.”  Nonetheless, right now Asian equity markets are pretty much stagnant and valuations are getting to crisis levels.  It is probable that earnings forecasts will lessen, but even with this, there is prosperity in the mid-single digits along with robust ROE (Return on Equity) ratios.  In addition, it is likely that quality income stocks will encounter an improved performance this year, within an environment of a reduced pace of Fed rate hikes and renewed regional central bank focus on policy easing.

If Sir Richard Branson is to be heeded, then the current environment is ripe for investing in Asia.  His Virgin Active gym chain is putting £150m ($217.85m) into South East Asia, with the opening of around 30 gyms in the region.  Virgin Active’s CEO, Matthew Bucknall, explained:

“The success of our first four clubs in Thailand and Singapore has exceeded our expectations and the time is right to accelerate our expansion plans. The global health and fitness industry is evolving rapidly, with many of the current Asia health club offerings being outdated first-generation, fitness-only formats. Along with opening more of our large premium clubs, we are also looking at new formats.”

As well as this move being beneficial to Virgin, South East Asia’s economy will encounter a hike as with Virgin’s expansions around 2,000 jobs will be created within the next six years.