Unleashing Asia’s potential

Most investors are familiar with the investing potential that Asia’s growth trajectory offers. A diverse region of multiple economies, Asia’s rise has been swift, and the region could generate about half of world gross domestic product (GDP) in the coming years¹.
 

GDP based on purchasing power parity¹

Forecasts / estimates are indicative, may or may not come to pass.
 

Even with the fallout of the global public health crisis, Asian equity market returns have largely been positive this year, driven predominantly by China, Taiwan and South Korea². Mobility restrictions and the use of digital contact tracing have helped these economies slow the spread of the infection.

And in Asia, new economy stocks such as healthcare, consumer discretionary and technology (tech) are increasingly on investors’ radar.

Structural growth factors such as the rise of middle class and the lifestyle changes arising from the health crisis could play increasingly significant roles in Asian equity markets. And we believe diversification into Asian equities could generate sustainable growth and lower volatility in the long run³.

Global and Asia equity market returns²

Past performance is not indicative of future performance.
 

China in the spotlight

China is among the first economies to recover from the fallout of global public health crisis. Recent Chinese data releases continue to point towards a sustainable economic recovery. And the base for recovery is also broadening as confidence improves among consumers and corporates.

In seeking potential growth opportunities, we believe there are a few sectors where the health crisis has magnified the structural impact supporting sustainable growth. Healthcare is one sector that will likely benefit from the structural changes arising from the crisis, especially in terms of healthcare infrastructure, preventive treatment and vaccine development. Some Chinese pharmaceutical companies already have core expertise in the fields of vaccine development and genetic therapies, and have become relatively competitive in pharmaceutical R&D outsourcing.

Additionally, the perception that China is a market of state-owned enterprises and manufacturing companies may have become outdated.

Today, many aspects have gone digital in China, benefitting sectors including cloud computing, gaming, fintech, software and hardware technologies. Indeed, the availability of 5G in China has enabled development of related trends and opened up potential investment opportunities.

Even the evolving US-China relationship is increasingly playing a key role in China’s tech transformation. The focus on developing domestic innovation could gain traction and herald a Chinese technological era.

Rest of Asia

And it’s not just China. The digital wave has also reached the shores of other Asian markets. Already, there are a number of promising eCommerce or payment unicorns in Southeast Asia and India and we believe that in time, these companies could go public.

And when these unicorns transit into the public sphere, there could be an even wider spectrum of equity choices in Asia, providing growth potential and investment opportunities.

The consumer in Asia⁴

As economies expand and wealth accumulation progresses, the global middle class grew by a billion over the last 10 years. The next billion is expected to arrive by 2023, of which 90% will be in Asia Pacific. By 2025, annual consumption in emerging markets is expected to increase to US$30 trillion, which is roughly on par with developed markets. [Read more: Finding growth: how a consumer’s routine can spark investing ideas]

Asia is becoming the heart of global consumption. Generally, an increase in income could drive wealthy consumers to pursue quality lifestyles, unleashing accelerating demand for consumption. Meanwhile, baby boomers who have accumulated wealth are turning their focus on retirement planning and medical insurances, deepening the development of some structural growth themes, such as in banking, insurance and healthcare sectors in the region.

Economic activities moving increasingly from off-line to online, alongside growing consumption and technology adoption, could lead to higher demand for technology-related services. 

Technological advances

North Asia is accelerating the deployment of 5G with South Korea being the first to commercially roll out the services⁵ globally, and also having the fastest network speed in the world. Japan and China are following closely behind, where Chinese tech investment, including infrastructure and 5G could total US$ 1.4 trillion over the next few years⁶.

Overall, 5G is a crucial enabler of technological advances in Asia, and this could give rise to other related trends and opportunities.

The global public health crisis has underscored the need for digital transformation across all industries. Cloud computing has helped ease data access for and to end-users, with better mobility, security and flexibility. Companies and government entities in China, for example, are shifting from on-premise software to cloud software. [Read more: Finding growth: it’s a digital revolution]

For most of this year, employees working from home have been transitioning to remote working relatively seamlessly in some locations. Still, some businesses were caught off-guard by the disruption from the health crisis.

Globally, information technology (IT) services is an estimated US$1 trillion total addressable market⁷. We believe that higher demand for IT services in the coming years could generate growth potential for some leading IT service providers, especially those in India.

Enterprise IT services is a US$1 trillion total addressable market⁷

IaaS: infrastructure as a service.

Conclusion

Asia is back on investors’ radar after the region is posting a sustainable economic recovery from the global public health crisis. Additionally, the continuing evolution of Asian stock markets could offer diversification potential and structural growth opportunities.
 

Provided for information only based on market conditions as of date of publication, not to be construed as investment recommendation or advice. Forecasts/ estimates may or may not come to pass.
 

Diversification does not guarantee investment return and does not eliminate the risk of loss. Forecasts, projections and other forward looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecast, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
 

1. Source: World Economic Outlook (October 2020), J.P. Morgan Asset Management. Data reflect most recently available as of 22.10.2020. Provided to illustrate generic market trends only, not to be construed as research or investment advice.
2. Source: FactSet, MSCI, Standard & Poor’s, J.P. Morgan Asset Management. Returns are total returns based on MSCI indices, except the US, which is the S&P 500, and China A, which is the CSI 300 index in US dollar terms. China return is based on the MSCI China index. Past performance is not indicative of future performance. Indices do not include fees or operating expenses and are not available for actual investment. Data reflect most recently available as of 30.09.2020.
3. For illustrative purposes only based on current market conditions, subject to change from time to time. Not all investments are suitable for all investors. Exact allocation of portfolio depends on each individual’s circumstance and market conditions. Provided for information only, not to be construed as investment recommendation. Investments involve risks, not all investment ideas are suitable for all investors.
4. Source: Brookings Institute, HSBC estimate, as of 2018.
5. Source: Reuters “S. Korea first to roll out 5G services, beating U.S. and China” (03.04.2019).
6. Source: Bloomberg News “China’s Got a New Plan to Overtake the U.S. in Tech” (21.05.2020).
7. Source: EPAM, Gartner “Forecast Analysis: IT Spending, Worldwide” (September 2019).
 

Investment involves risk. Not all investments are suitable for all investors. Past performance is not a reliable indicator of current or future results. Please refer to the offering document(s) for details, including the risk factors. Investors should consult professional advice before investing. Investments are not similar to or comparable with fixed deposits. The opinions and views expressed here are as of the date of this publication, which are subject to change and are not to be taken as or construed as investment advice. Estimates, assumptions and projections are provided for information only and may or may not come to pass. This document has not been reviewed by the SFC. Issued by JPMorgan Funds (Asia) Limited.