The Asian century is heralded…and our plays

A combination of an increasingly well-to-do consumer base, rising levels of education, leapfrogging several stages in the adaptation of smart digital technologies by the masses, climbing up the ladder of IP development and advanced manufacturing, and a motivated realpolitik to set-aside the old differences to the extent they do not impede the progress of collective regional prosperity. We are seeing these ingredients increasingly combust to produce energy and momentum for the collective Asian economy well into the future decades. Cold war 2.0 or no cold war 2.0 there is nothing getting in the way of this trend as all the ingredients necessary for ongoing economic momentum are internalised by the region.

This year, 2020, marks the turning point for global economic order and it has nothing to do with Covid-19. I am referring to the fact that Asian economies, as defined by the U.N., will collectively have a larger economy this year than the rest of the world. This is not a blip of a single data point but rather a part of a well-entrenched growth trend that most of us have heard about anecdotally. Asia has grown from 35% share of the world GDP to 50% over the past twenty years on the back of largely the Chinese growth engine. The region is expected to continue growing over the next twenty years for a range of reasons which we will discuss in this article. If anything, the trend might get stronger over the next two decades as China integrates the economic activities of other Asian countries, in a concerted way, with its own economy. For investors this is important in terms of asset allocation.

The Asian economic growth of the past twenty years was predominantly reliant upon an increasingly significant but single engine economy of China with other regional economies playing a support act. This is all set to change as Asia is stepping up the way it will coordinate itself as a single economic bloc with state of the art pan-Asian infrastructure (famously named The One Belt, One Road project) to transport goods and people seamlessly throughout the region. China is playing the central role in making this vision a reality by leading the efforts of firstly laying the facilitative political landscape by engaging, uni-laterally and multi-laterally, with other countries in Asia. The project has been well received by most Asian countries with some scepticism from India, but we think it too will participate eventually.

Over the past twenty years, China has accumulated a very large reserve of financial capital and the know-how of achieving sustainable economic growth. China is now going to put its knowledge and resources to use for the greater Asian region. China is not doing this for virtuous reasons alone, it has an ageing demographic (Median age 39 years versus 32 years for Asia) and a slowing economic growth problem. China can no longer rely on low value manufacturing for the future prosperity of its ageing and increasingly middle-class demographic, it needs to move to high value manufacturing and service sector jobs that embrace productivity and automation. As part of the One Belt, One Road vision, China plans to move its low value manufacturing installations to surrounding Asian countries where those countries will become upstream producers and suppliers into China’s advanced manufacturing and production system in fields ranging from superconductors, biotechnology, to high speed rail, power generation, machinery and telecommunications. China will fund and develop the infrastructure in host countries through JVs and special loans programs. The economic benefit for other Asian countries is obvious through boost of trade, tourism, employment and income for their citizens.

How is Banyantree playing this theme in our portfolios? At the end of the day, all our research and analysis efforts go into driving performance. In the table below we have provided some of our exposures to the Asian century theme. We have also provided the performance of global markets (MSCI ACWI) and the Australian market (S&P/ASX 200) over the same time periods as a reference. It is worth highlighting all of these positions have been held in our portfolios since at least the start of 2019.

Of course investors should be extra vigilant with their portfolios in the current climate (have hedges in place), for there are only two certainties in life - death and taxes. 

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