Asia the Next Place to Invest, According to HSBC Chief Investment Strategist

HSBC Private Bank chief investment strategist Jose Rasco recently discussed his views on the market with Sara Silverstein of Business Insider. His outlook on U.S. equities was positive, but he believes that investment in Asia is most likely to yield results this year.

The U.S. is certainly strong, he said. “We think that given the strength in earnings and the strength in GDP and the stability of inflation, and the Fed moving slowly, we think that the US is a good place to be,” he explained, “but if you want to invest in an area where you’re going to see growth, and that’s one of the reasons to invest in equities right, is we want to be in Asia. We see growth there in excess of 6% in China, 6.5-7% in China, in excess of 7% in India, positive demographics in India, and a great deal of spending on an infrastructure and technology so those are very positive drivers for us.”

Rasco indicated that infrastructure is particularly promising, especially in China. He explained that as countries throughout Asia become more digital, more opportunities arise to create jobs and meet new market demand. “In addition, you’re seeing in China the same thing,” he said, “a great deal of spending on infrastructure, the One Belt One Road for example, which is a massive infrastructure project — trillions of dollars a year for the next ten years, and they are building roads, essentially think of Marco Polo on a bullet train, and that’s what we’re seeing. We’re seeing the time of goods to market is being reduced dramatically by this project. Think of years ago, if you had been alive when the Chinese were building the Great Wall, would you not want to invest in the timber and cement companies that were making it? That’s what we’re in the middle of right now. So we like China for that infrastructure, because don’t forget when you invest in infrastructure, you create jobs, wealth, and you keep inflation under control.”

Decoding Asia for Growth

In this video, Peter Pham from Asia One Road Research talks to Shelly Kraft from Stock News Now. He begins by explaining what his company does – engaging in research to explain and decode Asia. Since people are so interested in growth in Asia, how can one understand the region appropriately. It’s different from the West.

Pham then goes on to explain that to decode Asia you first have to understand the history of the region, most of which dates back to post-World War II . at that point, many of the countries which exist today (like China or Japan) and try to understand the pre-existing regime that is now in power and the policies that they’ve implemented in those countries in order to ensure the growth that exists.

Where to Invest in Asia: A Brief Review

When investors think Asia they often automatically turn to China.  Economists understand that but also believe there are other areas in the region equally as good for different reasons. All too often these are overlooked.  In this brief article, we give a snippet review of 3 of them.

According to Matthews Asia Innovators Fund Portfolio Manager Michael Oh, South Korea features a “rising middle class” but is nonetheless “often overlooked [by investors] for China and India, so the valuations tend to look very attractive.” A couple of companies Oh believes are hitting the big time include: Samsung Electronics and Hugel.

For those focused solely on trading digital currencies, it seems like Japan has what to offer. With its announcement that it will be treating bitcoin as legal tender, it’s likely that this will be attractive to more investors.  Given that it is the most accepted form of tender with merchants (comprising approximately 44% of the aggregate cryptocurrency market cap), it makes for an attractive argument to conduct business with countries utilizing it.

When it comes to purchasing discounted assets, Reid Kirchenbauer believes Malaysia is the place to shop.  He points out that even though the region’s economy is strong, the currency in Malaysia is “near its lowest level in decades. Therefore, exchanging foreign currency into Malaysian and thereafter purchasing local assets “is a better deal than ever before.”  In addition, for those looking to invest in Asian real estate, Malaysia is the place to go since well-located properties are cheap – in Kuala Lumpur’s city center the price for a condo is less than $3,000 per square meter.

Tech Fitness Industry Growing in Asia

The Asian market for wearable fitness technology has boomed, and investments in the industry have increased significantly as a result.

According to CB Insights, a venture capital research firm, “the proliferation of mobile, a burgeoning middle class and pro-fitness government policies are enabling the rise of fitness tech in China and India.

“For example, in June 2016, the Chinese State Council issued a plan to implement a national fitness strategy to improve the physical fitness and health levels of the entire country by 2020,” CB Insights’ report stated.

The report added that India’s National Skill Development Corporation is supporting a K11 Academy of Fitness Sciences to instruct new personal trainers as well.

Cb Insights intelligence analyst Anagha Hanumante explained: “Investors are realizing that there is a great opportunity to tap into the fitness category, because consumers are spending a lot of money on these services, along with associated products, such as apparel and adjacent services such as nutrition.”


Guangdong Opening Economy to Foreign Investors

Guangdong is moving forward with a plan to further open its economy to foreign investors. The government has put forth ten new rules aimed at improving the conditions for the manufacturing, service and financial sectors. The rules address issues such as foreign capital admission, land use and tax collection.

According to the Asia Times, “some 30% of restricted areas which were previously limited to foreign investors will no longer have a cap on foreign share ownership, including special and new energy vehicles manufacturing, ship design, general aircraft maintenance as well as setting up foreign investment banks and securities companies.”

The government will also reward foreign investors who choose to do business in Guangdong.

Liu Xiongwei, director of the Trade and Industry Development Division at Guangdong Provincial Finance Bureau, explained that the new policies will work to attract Top 500 global companies, as well as “new high technology sectors and major manufacturing programs.”

Southeast Asia Real Estate On the Rise

Recent industry reports have shown that investors in Hong Kong are focusing on real estate in Southeast Asia. Demand for investment properties remains strong in the sector, with transactions climbing 19% each year to approximately $61 billion in the first half of 2017.

“Bangkok’s property prices are just about a quarter of Hong Kong’s,” explains Gordon Cheung, an investor who recently purchased a property in new project Life Asoke Rama 9 in Bangkok. “The location is also great, at the heart of Bangkok’s central business district near the Chinese embassy,” he added.

AP (Thailand) and Mitsubishi Estate Group’s development, which has 154 units for Hong Kong investors, sold more than 95% in its first two days on the market.

According to Vittakarn Chandavimol, AP’s chief condominium officer, “foreign buyers of Thai properties mostly want a stable rental income, unlike those who buy properties in Western countries for their Children’s education. Average rental yield of Bangkok’s property is 5.15 per cent. As only 49 per cent of flats can be sold to foreign buyers, the supply to each market is limited.”

Chandavimol explained the difficulties in breaking in the Chinese market. “Chinese citizens are limited to exporting $50,000 per person, per year. But buyers can split payments, not to mention the fact that a lot of flats are cheaper than that. Prices of high-floor studios on this project start at HK$670,000.”

“Despite capital controls, we expect continued Chinese interest in APAC gateway cities in the near term,” he said. “Thereafter we foresee material Chinese investment in Belt and Road markets in Southeast Asia. This should be a long-term trend.”

Global Financial Firms Expand in China

Financial firms across the globe are branching out into the Chinese investment market. In recent months numerous firms have launched funds in China, including BlackRock, UBS Asset Management, Vanguard and Fidelity International.

Chantal Grinderslev of Z-Ben, an investment management consulting firm based in Shanghai, said: “”You can no longer ignore China. You have to plan on being there.”

According to data from Z-Ben, assets under management at Chinese private funds increased 54.6% last year, reaching $398 billion. Between 2005 and 2015, institutional assets in China climbed 500%, starting at $1.1 trillion and hitting $7.1 by the end of 2015.

UBS Asset Management received a license to manage private funds in China this past summer. The firm’s managing director and head of China strategy and business development Aries Tung explain in an email: “China is a key growth market for UBS Asset Management. Our goal is to be a leading asset manager in China for both onshore and offshore investors. The license allows UBS Asset Management to start managing money for mainland institutional and high-net-worth investors in the world’s second-largest economy for the first time.”

In July, the Boston Consulting Group predicted that China will become a leading source of “significant” gain over the next few years. Their report states: “The Chinese market and its investors are becoming more sophisticated. An aging population and the growth of wealth are expanding demand for dedicated products, including target-dated funds and ETFs.”

According to EisnerAmper’s Timothy Speiss, “China could very well be number two or number three in hedge funds and private equity within the next two to three years.”

Sony to Acquire French Believe Digital

Sony is finalizing talks to acquire Believe Digital, a music distribution and label services provider based in France. With business operations in over 25 countries, Believe was founded in 2005 and owns TuneCore, the American company that provides indie music to significant online distributors, including Apple. The company has annual sales of around $250 million, and focuses on indie music and works with 150,000 international artists. The upcoming transaction is estimated at between $355 million and $444 million, and will include a majority stake and an information technology investment fund.


In recent years, Sony Music Entertainment has acquired several major players in the music industry.


According to Nikkei Asian Review, “The Japanese conglomerate made the world’s largest music publisher, Sony/ATV Music Publishing, a wholly owned subsidiary last year by purchasing the remaining 50% interest for $750 million. In 2015, it turned indie-music distributor Orchard Media into a wholly owned subsidiary.


It continues, “Sony’s music segment generated a 75.8 billion yen operating profit in fiscal 2016, accounting for 26% of overall group profit. The company is sharpening focus on steadily earning profits from a stable customer base, and the broader music content and distribution operations are seen contributing a significant chunk of earnings going forward.”


Cryptocurrency Asian Market

Bitcoin has been proven over the last few months to be a high performing financial asset and is thus gaining increasing popularity as an option for investors in Asia. Indeed, in less than one quarter Bitcoin value has doubled. Likewise altcoin is doing well.   In a recent Financial Times article Richard Walters wrote that “alt-coins are the simplest of tech companies.” All they do is release a very small piece of code. The idea is for them to develop “cryptographically secure ways to enable transactions between parties that have no other contact or way of authenticating each other online.”

In other words, there is movement toward the entire industry of cryptocurrencies which is proving time and again to be a trusted financially-performing asset with an oft-better opportunity than conventional investment options. Evidently in Asia, investors are putting money into these opportunities. This is especially true in Korea and Japan, with financiers choosing these investment markets over others. Over in Malaysia too, investors are dipping their ink in the same pot with Luno’s (a Bitcoin startup) connection with the Bank Negara Malaysia. Indeed, according to Luno Countries Associate, Mriganka Pattnaik, the bank has been successful in really starting to learn more about the Bitcoin industry and scan prevention. He added that:

“With regards to policy, (regulating bitcoin is) not a very easy thing to do. I can’t comment on when or how BNM will regulate the industry, but they are always in touch with us about this and we are more than happy to provide them with input.”

Meanwhile, Ripple – a Blockchain startup that crated a digital payments network for RTF transactions – owns a staggering 61 percent (worth approximately $16 bn) of Ripple XRP (the fastest and most scaleable digital asset). Just last month the company signed up 10 new financial institutions, illustrating it is here to stay in the cryptocurrency Asian market.

Impact of Trump and Brexit on Asian Exports

Asia has been reaping the fiscal benefits of its exports in various industries (including clothing and gadgets) for many years.  Orient Craft Ltd. is one such factory that employs 400 workers, manufacturing ladies clothing that is sent to Ann Taylor, Gap and J. Crew among others.

Located just outside of New Delhi,  Orient Craft is one of 26 such facilities in India.  Assembled they export around 250,000 items of clothing EACH day.  Over 60 percent of these go to America.  Annual revenues today stand at over $300 million.

Clearly there are indications that there is just huge demand from the west for everything Asian.  But the question is, will this last?

Politically, things in the west are changing and concerns are coming up that this could negatively impact the demand for Asian exports.  First, Trump promised to bolster US jobs by scaling back on imports. Those most impacted by this would be in Asia, specifically in China, Japan, South Korea and Vietnam – regions that have the largest bilateral trade surpluses.

As such, founder of Orient Craft Sudhir Dhingra is concerned.  He noted that: “The US under Trump could impose some additional duties, that’s a worry.  People will find out that you can’t move everything back home. People won’t pay those prices.”  And on a more global level for Asia, exports are exceedingly important.  Being the world’s fastest growing economy (around 30 percent of international growth) Asia relies heavily on trade. Indeed, when looking at the UK, one such problem could arise for Japanese auto manufacturers manufacturing cars in the U.K. and selling them to the British who want to avoid tariffs on these if exported into the EU.

Right now, things are good for Asia and its export economy.  But it is advisable for the region to start looking at how to shake things up as things evolve.