Opportunities for investors with an Asian focus are changing rapidly and dramatically as China’s growth story evolves, according to Mike Kerley, manager of the Henderson Far East Income fund.
‘Asia was historically seen as the beneficiary of global trade and exports, but that is no longer the case; it’s increasingly about consumer trends and the growing global presence of Asian companies,’ says Kerley.
Asia accounts for 25 per cent of the world’s GDP but only 8 per cent of its market capitalisation, so there is a huge opportunity for Asian businesses to grow their share of global markets - and that’s exactly what is happening.
‘The growth market for big western multinationals is emerging markets, but in Asia, local companies are taking market share from traditional western brands, as the quality of these local products improves and consumers realise they don’t need to pay a premium for imports any more. So western companies are losing out to local brands. Sportswear firm Nike is not expanding in Asia as fast as its Chinese equivalent Anta.’
In the West, too, perceptions are changing. Many Asian brands, and in particular Chinese brands, have historically been viewed by consumers in developed economies as cheap alternatives to more familiar names - but that situation is being progressively undermined as their quality improves.
‘The Chinese technology company Lenovo is already here in the UK, challenging Dell and HP in the laptop market. It is already the biggest player in the UK as far as corporate IT is concerned.’
Similarly, he says, Chinese telecoms firms Huawei and ZTE now account for 55 per cent of global telecoms infrastructure between them.
Kerley sees that trend continuing both in Asia and in the West, though so far only a handful of the challenger names – Alibaba, Tencent, Samsung – are familiar to most western consumers.
He adds that the Chinese state’s latest Five-Year Plan spells out the country’s economic priorities for the coming years. The Made in China 2025 initiative has been designed to upgrade its manufacturing industry, reform state-owned companies and ensure Chinese brands and companies become prominent global players, particularly in high-tech areas such as robotics and biopharmaceuticals.
‘It’s no longer about low-cost, low-tech production. By 2025 China will have a GDP similar to that of the US,’ Kerley says. In contrast to previous decades, however, it’s not western exporters but Asian companies that are set to be the primary beneficiaries of that growth in GDP.
However, Kerley maintains that on a long-term view Asian valuations are still reasonable compared both with the region’s historical valuations and with world markets. ‘High growth means valuations are getting stretched; it’s inevitable that the pace of growth will slow, but I’m positive on Asia on a relative basis,’ he says.
‘We prefer North Asia, particularly China and Korea, over the Asean countries such as Thailand, Philippines and Indonesia, which are more expensive and have lower earnings growth,’ he adds.
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