This article is part of Morningstar's 'Perspectives' series, which features contributions from third parties such as asset managers, academics and investment professionals.
Returns from Asian markets in 2012 exceeded all expectations – with the MSCI AC Asia ex-Japan index up 22.7%. There’s no doubt there were a host of broader external reasons for the ascent of global markets from July’s trough, from the co-ordinated global easing in September to the receding threat of an imminent eurozone collapse. However, Asia’s structural growth story remains very much intact. This is applicable for countries beyond the usual powerhouses of China and India, with the former’s pickup in growth towards the end of last year also helping to boost sentiment across the region.
The fact remains that Asia will continue to grow its share of global output. In 2000, Asia Pacific ex-Japan represented less than 20% of global GDP. This share is projected to rise to 35% by 2017.
Matthew Dobbs, manager of the Silver-rated Schroder Asian Alpha Plus fund (
Analyst Research) outlines below the five key reasons for why investors should be in this region for the long-term:
Asia is one of the fastest-growing regions in the world
As one of the most dynamic and exciting regions at the moment, Asia has consistently overshadowed Western economies and their anaemic growth rates. In fact, it stakes a claim to being the primary engine of global growth – and this isn’t just confined to China. Across the region, there are a diverse range of economies at varying stages of development, offering investors select opportunities from which to choose. Its demographics are one of its defining strengths. While Asia currently accounts for 30% of global GDP, it has nearly three fifths of the global population.
Asia possesses quality companies across a broad range of industries and sectors
Many of the global titans of business in the future are likely to be listed on Asian stock exchanges. A clear focus on bottom-up stock selection helps identify companies that offer the greatest potential of driving future returns.
Asian economies are more stable and sustainable
Following the Asian financial crisis in the mid-1990s, Asian governments have been working hard to strengthen their balance sheets. Furthermore, many countries now have much lower debt-to-GDP ratios than most Western economies, along with some of the lowest debt-to-equity ratios in the world.
Asia is increasingly independent
Although complete ‘decoupling’ of Asia’s emerging economies and those of the West has not been realised, increasingly Asia is becoming more independent. A shift away from its usual global-export model has seen a more regionally-focused growth model take its place. While it may be hard for the region to ignore what’s happening in Europe or the US at the moment, the potential impact has been less severe than it may have been ten or 15 years ago.
Asian policymakers have flexibility
The region continues to have the ability to act if needed. While in developed Western economies interest rates are at all-time lows, Asian central banks have the capacity to cut interest rates if needed – which should go some way to support economic activity in the wider region in the event of global weakness.
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Schroders Investments Disclaimer
The views and opinions contained herein are those of Matthew Dobbs, Fund Manager, Asia ex Japan Equities, Schroders and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Issued in February 2013 by Schroder Investments Limited, 31 Gresham Street, London EC2V 7QA. Registered No: 2015527 England. Authorised and regulated by the Financial Services Authority.
