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.

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.

Southeast Asian art is gaining greater recognition as a potential investment.  According to Southeast Asian Christies Specialist, Dexter How, the art there has encountered a “20-30 percent growth over the last five to ten years but it still depends on factors such as the rarity, provenance, and condition of the piece.”

 

Thus the success of the recent global Spring Masters New York – depicting art from Asia (as well as Europe and the US) – should come as no surprise.   Two of the Asian vendors this year were: Wahei Aoyama, Yufuku Gallery (Tokyo) and the Sundaram Tagore Gallery (with a presence in New York, Hong Kong and Singapore).  In terms of Europe and America, participating galleries included Phoenix Ancient Art (that has a presence in both Europe and the US), Trinity House (New York and the UK) and Jerome Zodo Gallery (Italy and the UK), to name but a few.
But it’s not just about the finances of this.  At the event ProjectArt was there teaching about what it does. This non-profit organization has one goal: to put paintbrushes in the hands of young American children whose schools lack the resources to provide adequate arts education.”

robotRobots in Asia are becoming increasingly prevalent.  China and Japan seem to be the leaders in the robotic revolution, but the whole of Asia is being subject to these machinery assistant that are now to be seen in hospitals, retail stores, warehouses and more. Patent lawyers can attest to the substantial increase in filings for robotics technology, so much so that patent research firm IFI Claims have stated there has been a tripling of annual filings over the last 10 years.

Even though America leads the way vis-à-vis robotic software, China is ahead of the game in hardware manufacturing expertise.  It seems that robotics have become the country’s “national priority” and thus the race begins between east and west for which country will come out trumps in this new industry.

Just recently in Beijing, Americans and Europeans joined the Chinese in its Global Mobile Internet Conference.  It was predicted by the International Federation of Robotics that China will be subject to the most industrial robots working in factories by next year than any other country.  This is good for Asia as a whole, but it will be taking the place of Japan.  At an estimated $9.5 billion, China’s robot market is one of the largest in the world.

And that is just the beginning.  By 2020, China said if all goes according to plan, its production of industrial robots will be tripled, increasing production of approximately 33,000 annual units to 100,000.

It seems like a great place to make an investment.  Indeed, according to CB Insights, in 2015, VC investments more than doubled to a staggering $587 million. This includes private equity investors who want to build robot investment portfolios, and new incubators like Playground. Another reason it’s becoming an increasingly popular investment option is the price drop: over the last four years, there has been an average 14% price drop for industrial robots, all this while their capacities are increasing.

 

energyRussia used to be one of the big Asia FDI’s.  Over the last few years or so however, this has been changing. Various factors have contributed to the depletion of Russian finances entering into Asia.  One recent reason given was put forward by Kyrgyzstan President Almazbek Atambayev who at the end of last year pulled out of a Russian-Asian deal to construct two major hydropower facilities.  He explained as follows: “In the current situation, when the economy of Russia is not on the rise, let’s just say, and the trend for oil prices is only going downward, we see that these agreements… well, for objective reasons they cannot be fulfilled by the Russian side.”

This is not the only deal cancellation that has taken place in recent times.  It seems that there have been many disruptions to investments caused by Western sanctions against Russia.  One example was when work was suspended on the Caspian Sea’s Tsentralnoye offshore field since some of the technology needed for drilling was banned from sale to Russian companies.  One reason given was articulated by CEO of LUKoil, Vagit Alekperov who explained: “We cannot get the drilling equipment because it belongs to non-Russian companies. To build another drill rig just for one well would be illogical, so we and Gazprom have taken a pause, and we will wait until either other rigs free up, or sanctions are lifted.”

And then there was the highly publicized Russian withdrawal from Turkmenistan’s energy market in Central Asia. The highest-profile Russian retreat from Central Asia’s energy market is in Turkmenistan; that, in comparison to the celebrations marking the 2007 historic agreement between the two regions of the pipeline built that linked the two.

But it’s not all bleak for Asia.  In a more recent article in The Telegraph, it was explained how lucrative making an investment in Asian income funds can be for investors.  It comes with little risk and lots of growth opportunities.  As Jupiter’s Asian Income Fund Manager Jason Pidcock says: “They [these funds] offer diversity of income source and currency exposure and will aim to capture an exciting growth story in the medium to long term.”

And that’s before we even look at the technological investment opportunities Asia has to offer.  This can be seen via the $38million Tech in Asia Fund, which seeks to “serve the tech and startup ecosystem in Asia,” which it has been doing by “uncovering promising startups, reporting about news in the tech scene, and connecting people at our events.”

Yes, there have been some FDI withdrawal in Asia, but one only needs to look at McDonalds to see that Asia is still a powerhouse.  While there are currently over 2,800 McDonalds’ spanning China, South Korea and Hong Kong, that is just the start as the restaurant chain announced an additional 1,500 new eateries to make their presence in the region over the next five years.  Why?  CEO and President of McDonald’s, Steve Easterbrook said it was because: “Asia represents a significant area of opportunity for McDonald’s to blend our global quality standards with local insights and expertise from partners who share our vision and values.”

 

video-gamesIt seems that when it comes to video games, South East Asia is where it’s happening. And it’s set to continue happening there too. Predictions for the next few years, garnered from Newzoo research firm, show that game revenues are set to grow by 50 percent per annum and by 2018 reach $485 million. Much of this is being facilitated by the new 4G mobile spectrum.

Even in 2015 there was an expansion of 86 percent. This is substantially higher than China, Japan and South Korea. The main place it’s happening is Thailand, which is, according to CEO and co-founder of Playlab, Jakob Lykkegaard, “becoming a key market for mobile games and studios.”

This could be partly in due to the fact that research has shown Thais to be spending an average of 5.7 hours per day on their smartphones.

It could also be the case that Indonesia will follow suit and soon after because the Number one South East Asian region for gaming due to factors like continually expanding middle class, increase in mobile web penetration and its already considerable population.

Furthermore, a recent announcement will very soon make it possible for Indonesia to have a strategic plan that will shape its entire digital game industry in an effort to give local developers more of a controlling share of the market. An action plan is being developed to facilitate the country’s goal of having local players in the gaming industry control at least half of the market by 2020. Currently, they only have control of 20 percent of the $321 million generated by the gaming industry and there is a threat that the figure will further plummet to 3 percent in the next three years if the government does not collaborate with local industry stakeholders.