Investors should look to Asia, says fund manager

Investors should be looking to Asia, says the CEO of Geneva-based Quaero Capital, Jean Keller.

‘Investors generally have not yet realized the scale of the phenomenon, but it is now time to give [Asia] the place it deserves in investment portfolios,’ writes Keller in a comprehensive historical study of the prospects and investor opportunities in the region.

‘Nobody can deny that Asia is a fast-growing area, in both economic and demographic terms. But we are not always aware of the magnitude of the transformation experienced by the entire continent. In this respect, the figures make us dizzy: while in 1980 Asia accounted for only 7 percent of global gross sales, this has recently more than tripled to 25 percent.’

Keller notes, crucially, that this strong expansion has not always translated into stock market performance, and Asian equity markets outside Japan were not always the best avenue to benefit from these developments. In fact, since the beginning of the 1990s, investors have been much better rewarded by buying western multinationals like Coca-Cola or McDonald’s, rather than taking the risk of plunging into the Asian markets.

‘This trend should reverse,’ Keller says. Firstly, he notes that the share of business profits in world GDP has reached a very high level and there is every indication it might now decline. Business profits went from 7.6 percent of global GDP in 1980 to nearly 10 percent now.

‘But the coming to power of protectionist politicians such as US President Donald Trump added to the reinforcement of populist movements around the world is part of a serious questioning of globalization, already attacked by various left-wing anti-globalist advocates,’ says Keller. 

In turn, Asian economies are relying less and less on the relocation of production and exports to western countries.

‘Indeed, the most important Asian countries have reached economic maturity, with flourishing domestic consumption supported by the emergence of a true middle class, eager to buy consumer goods and invest,’ Keller continues. ‘Thus, while in 2009 the middle class had only 525 mn people in Asia-Pacific, [that figure] is expected to total 1.7 bn people in 2020 and exceed 3.2 bn in 2030. That will amount to two thirds of the global middle class.’

Expanding on this, Keller notes that the region is no longer ‘just a gigantic offshore factory’ producing low-cost goods designed and marketed by multinationals in developed countries. In fact many Chinese, Indian and Korean actors are successfully projecting themselves onto international markets.

‘Today, 20 percent of global Fortune 500 companies are Chinese, while the share of US or European companies has fallen from 76 percent in 1980 to just over half,’ explains Keller. ‘This trend is expected to accelerate in the future. At the regional level, the dominance of Japanese and Korean companies has been reversed in favor of China: Alibaba is now four times larger than NTT, the undisputed leader of the region in 2007.

‘China and India have made extraordinary progress in digitizing their economies, so much so that digital commerce is comparable to or larger than that of the US. For example, mobile payments in China are 80 times larger than in the US.

‘It should also be noted that in the field of research and intellectual property, the world center of gravity has shifted to Asia. Between 2006 and 2016, Asia’s share of patents filed worldwide rose from nearly 50 percent to more than 64 percent – a figure that is constantly increasing.’

In conclusion, Keller states: ‘As the role of the investor is to participate in the growth of the economy’s profits to grow savings, it is time to give Asia its true importance in our portfolios and realize that these changes are of a structural nature. While Asian markets still represent only a small share of equity portfolios – reflecting their perception as risky investment – it seems the real risk is mainly to exclude or underweight this region.’