A multi-income journey into the emerging high-yield potential
Income investors like us have stayed the course as we ride through the four seasons. Where do we see income opportunities?
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
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
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the perception that China is a market of state-owned enterprises and manufacturing companies may have become outdated.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$30 trillion, which is roughly on par with developed markets. [Read more: Finding growth: how a consumer’s routine can spark investing ideas]
Asia is becoming the heart of global consumption. Generally, an increase in income could drive wealthy consumers to pursue quality lifestyles, unleashing accelerating demand for consumption. Meanwhile, baby boomers who have accumulated wealth are turning their focus on retirement planning and medical insurances, deepening the development of some structural growth themes, such as in banking, insurance and healthcare sectors in the region.
Economic activities moving increasingly from off-line to online, alongside growing consumption and technology adoption, could lead to higher demand for technology-related services.
North Asia is accelerating the deployment of 5G with South Korea being the first to commercially roll out the services5 globally, and also having the fastest network speed in the world. Japan and China are following closely behind, where Chinese tech investment, including infrastructure and 5G could total US$ 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
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.