This article is part of Morningstar’s Guide to Investing in Asia where we navigate the potential risks, for the chance of fantastic rewards from across the continent.
Emma Wall: Hello and welcome to the Morningstar series "Why Should I invest with you?" I'm Emma Wall and I'm joined today by Hyung Jin Lee, Head of Asian Equities for Baring.
Hello Jin.
Hyung Jin Lee: Hi Emma.
Wall: So big news. China has abandoned the one child policy in favor of a two child policy. Should we care about this as investors?
Lee: I think so. In the long term, I think it’s a move in the right direction. As you know China even given the size of its population was aging almost as quickly as Japan or Korea. And I think this measure is one sort of way that Chinese government wants to encourage long term economic growth, obviously you need younger people in your population to have a healthy economy. Given the one child policy we started in the '70s, late '70s had really sort of accelerated the demographic aging of China.
Quite frankly though, it's going to take a long time, it's going to be gradual because if you start having more babies now obviously that’s not going to really impact the population until several years from now. Also the fact that as any population gets more affluent. The birth rate naturally falls. So I think that it will be more of an impact of perhaps slowing the aging of the population rather than reversing it, but we'll have to see. We think that in addition to these measures probably China will have to provide more incentives. Provide some more, I don’t want to say subsidies, but more financial incentives for young couples to have more babies.
Wall: How does this tie in with what the Communist Party is doing as a whole?
Lee: The government of China is looking to really sponsor long term balanced growth and up till now largely the growth of Chinese economy has been based on what we call fixed asset investment, building more roads, building more buildings and such, as well as exports. Now I think the Chinese government would like to sponsor a bit more domestic consumption, more consumer based growth.
And of course the one child policy or the relaxing of the one child policy is one part of that as well. Babies take up a lot of money as you know. I think that is ongoing gradual process. Of course the Chinese economy remains very much sort of a policy directed economy and that will only change gradually over time.
Wall: Of course you are Head of Asian Equities which means you can comment on the region. How important is politics and the economy to stock markets within the region? Because in the U.K. and the U.S. we tend to say the economy and stock market are separate, but it seems in emerging markets they are more intertwined.
Lee: Well, I think that even in developed markets like the U.S. or the U.K. I mean certainly monetary policy still has a lot to do with the markets as well as the economy. But in general as your level of economic development goes up perhaps the government's direct hand becomes less and less visible in the economy. And so with lot of Asia still in the developing phase and the emerging phase. Yeah, I think government policy, government direction does play an important role perhaps even a larger role than they would in the developed markets. And investing in these kind of economies, you have to be aware of that and you have to consider that when you are looking at emerging Asia as an investment destination.
Wall: Jin, thank you very much. This is Emma Wall from Morningstar. Thank you for watching.
