Expanding Japan’s Economy

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.

Companies Investing in Asia

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.

US: Making Asian Investments

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.

Investing in China: The Asian Biotech Hub

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.

Invest Asia: India Versus Japan

indiaWhen it comes to investing in Asia, where is the best market? In a recent study, India came out on top for FDIs, out of 110 countries worldwide. America only reached position number 50 and China – traditionally the place to invest in Asia – came in at a poor 65.

The study was the result on a Baseline Profitability Index (BPI), created by Daniel Altman who reported that in 2015:

“India coming out on top, with growth forecasts up, perceptions of corruption down, and investors better protected following the election of a government led by Prime Minister Narendra Modi.”

The BPI is based on: the following levels: the value an asset grows, how that value is preserved while the asset is owned, how easy it is to perpetrate of proceeds from the sale of the assets.

Japan is also not such a place to be sniffed at, when it comes to foreign investment opportunities. In the first quarter of 2015 its GDP increased by an annualized 3.9%, which was its highest it had been since the same quarter back in 2014. While that growth is mainly connected to inside investments, it should still be a factor for potential FDIs. Indeed, profits are increasing and yen is weakening. Japan-based firms like Panasonic and Toyota Motor are taking advantage of this, substantially boosting their global investments.

Ultimately it depends on very much on timing, and corporation. For those looking into Asia investments, it is crucial to investigate how other companies in those industries have fared in each destination.


Reasons to Invest in China

ChinaPotential Asia investors might want to look into China right now. The first reason is because of the proposal put forward by the Commerce Ministry that would consolidate foreign investment in China while reducing restrictions and start adjusting the variable interest entitles often used to sidestep foreign-ownership limits.

According to Hong Kong-based Partner at Davis Polk & Wardwell, Anthony Dapiran, if this becomes law it will “push China so much closer to being a ‘normal’ place to do business.” This is partly because the region will no longer have conflicting layers of regulations and bureaucracy will be facilitated as local and central government approvals for most investments will be eliminated.

This could be part of the reason that foreign companies are investing in the region. For example, L Capital Asia just announced its second substantial investment in China. This marks its first investment in an outlet mall throughout the world. The company will be putting in $100m+ in Sasseur Cayman Holding Ltd. – the company that began as a coffee shop but has now developed into four outlet malls, featuring brands that sell excess stock at bargain prices.

So if the trend continues, then China will be becoming an increasingly more attractive region for foreign investors.

Malaysia and Singapore Travel: Not Working Together

causewaySingapore recently added toll charges to the Causeway, making travel to the region more expensive. Singapore followed suit. According to a member of the Land Transport Authority, Singapore’s policy is to do what Malaysia does. There are some specifics in the new toll (regarding the Eastern Dispersal Link [EDL] and the Malaysian Causeway Customs, Immigration and Quarantine Complex [CIQ]). Economists and businessmen are arguing that these tolls are resulting in a negative impact on Johor investment.

However, according to Tan Sri Shahrir Samad, the Singapore tolls will not have this effect. He believes that investors will find a way around it, like working virtually. In addition, he pointed out that property rentals in Johor were still significantly cheaper than renting in the republic.

But not everyone agrees with this. Nur Jazlan Mohamed – Pulai’s Johor MP – pointed out that Malaysians traveling to Singapore on a daily basis will “get hammered twice.” And, it will impact Johor’s businesses, as according to Boo Cheng Hau, “for an average car, it would cost RM33 the toll charges on both Iskandar and Woodlands CIQ. Even though it is only S$13, which may not be a burden for Singaporeans, it would certainly be a heavy burden for Johorean commuters.”

Thus it might be wise for both governments to figure out a solution together for further development. As far as Hau is concerned, this will include: “abolishment of tolls at the CIQs, speeding up MRT/LRT connections between Singapore and Iskandar Malaysia, and environmental protection of Johor Straits including the Forest City project.”

China’s Forex

Dariuz KowalczykChina’s FOREX reserves have been escalating substantially over the past five years. In 2009, the figure exceeded $2 trillion and by the end of last month, that number nearly doubled! China’s FOREX makes up a a third of all FOREX reserves worldwide. According to Li Keqiang, this figure has become somewhat burdensome for China, forcing its Central Bank to issue home currency for the purchase of FOREX, which can increase inflation.

Given this situation, experts have advised officials to encourage business people to keep hold of foreign currency and put their monies into foreign markets. One possible explanation for such FOREX reserve escalation is the export increase and foreign investments that are coming to China. Since the region has a trade surplus, further FOREX arrives. And, given that China is becoming an increasingly attractive place for FDI, this further stokes the issue.

In a response to these and other related issues, officials widened the freedom of its banks to set foreign-currency deposit rates in Shanghai. With this, interest-rate controls would be facilitated countrywide. According to senior economist at Credit Agricole SA, Dariuz Kowalczyk, “this is a small step in deposit-rate liberalization because forex deposits are a tiny fraction of the total. However, the removal of Forex deposit caps does represent a step towards liberalization of interest rates and will increase hopes for raising the cap on yuan deposits in coming months. This in turn would lead to higher rates throughout the economy.”

In addition, the People’s Bank of China recently began a trial period on removing the ceiling on foreign currency deposit rates for small accounts at first. Later on, should this go well, it will be extended to other accounts, contingent on the current market conditions.

To a certain degree, China needs its FOREX reserves. But for global transactions and to cope with potential risks they are necessary. However, in excess, they result in an “unendurable burden.”

West Asia Region Projected to Collect $90 Billion by 2020

A recent survey launched by the Airport Show reveals that the West Asia region has extremely high potential for growth and investment over the next five years. In fact, $90 billion is projected to go into the industry between 2013 and 2020.

The survey, which was held just before the inaugural Global Airport Leaders’ Forum, shows that 64.4% of the respondents voted for the West Asia region. 16.7% voted for Asia Pacific, while Central Asia and African regions won 5.2% of the votes.

The West Asia region is expected to handle 400 million passengers over the next seven years, including 98 million by Dubai airport.

The survey said: “An investment of $90 billion is projected to go into aviationindustry in the Middle East by the year 2020.”

Airport Show event director Daniyal Qureshi stated: “Senior executives from across the international aviation industry have contributed to the survey and we believe the survey results will contribute significantly to the important discussions at the Global Airport Leaders’ Forum and help highlight the key challenges and opportunities industry leaders face today.”

Asian Development Bank President Steps Down

Asian Development Bank president Haruhiko Kuroda has stepped down from his position to serve as governor of the Bank of Japan. Having worked at ADB for eight years, Kuroda was the longest serving president at the bank.

During a speech, Kuroda said he hopes that the ADB will continue to support Asian countries while taking advantage of growth opportunities and responding well to crises that may arise.

“Much remains to be done in a region still faced with many challenges,” he said. “I have every confidence in ADB’s continued success in addressing them.”

According to P Chidambaram, Indian Finance Minister and Chairman of the ADB Board of Governors, Kuroda played a critical role in the bank’s journey to becoming the region’s leading development institute.

“His extraordinary vision and leadership have enabled ADB to significantly advance its mission of poverty reduction and sustainable economic development in Asia and the Pacific,” he said.