Time to Invest in Asia

In less than 20 years, three of the four largest economies will likely be Asian–China, India and Japan–indicating that it may be time, for those who haven’t done so, to seriously look into long term investing into these countries.

By 2032, China will have overtaken the US to hold top spot while India may possibly take the top place in the second half of the century, said Bloomberg, quoting London-based Center for Economics and Business Research.

India is seen to leapfrog Britain and France next year to become the world’s fifth largest economy in US dollar terms, and will likely advance to third place by 2027, moving ahead of Germany.

By 2032, South Korea and Indonesia are also expected to enter the top 10, supplanting the Group of Seven nations of Italy and Canada.

Other interesting shifts in global standing, according to the report, are: In 2028, Brazil will become the sixth largest economy, while Russia will drop from 11th place in 2017 to 17th in 2032; a result of weak oil prices.

The report also notes that technology, rather than globalization, will be the driving force behind economic growth moving into the future. It asserts that the digital revolution will continue to propel economies, placing “a premium on creativity”, that will encourage workers to migrate accordingly.

Countries will have to evolve, the report says. “To avoid major loss of jobs or growth in inequality, institutions will need to be flexible,” it says. “This means reforming welfare, tax, education and labor markets in many countries.”

Connectivity

“China and India will offer vast trade, investment, business and market opportunities to trading partners and investors seeking a footprint in Asia. These two economies are set to play a dominant role in the international stage both economically and financially, displacing the US and major European countries,’’ said Lee Heng Guie, executive director, Socio Economic Research Center.

As China steps up its engagement with the region and promotes Asian connectivity through the Belt and Road Initiative, it opens up opportunities in all sectors ranging from manufacturing to services, power to transportation.

“The deepening of economic and financial integration between China and the rest of the world will spur demand for the yuan as a global reserve currency. India’s regional position and outreach across South Asia will benefit its neighbors in areas of market liberalization aimed at wooing foreign direct investment; infrastructure development and people connectivity,’’ said Lee.

Short to Medium-Term Risks

“Rising affluence and an increasing number of middle income households will be the biggest drivers of consumption, making India one of the largest consumer markets in the world. But there are short to medium-term risks that can derail their path towards economic expansion.

“Top on the list of risks is a pullback of globalization and pursuance of inward policies by advanced economies. Other risks include that of financial instability triggered by an unsustainable growth of debt and threat of geopolitical tensions,’’ said Lee.

Testament to the theme of “Asia rising”, the 38 Chinese billionaires on the Bloomberg index added $177 billion in 2017, a 65% gain that was the biggest of the 49 countries represented.

Currencies and Stocks

Asia is the top pick for currencies and stocks, with bonds and equities in developing countries likely to continue outpacing their developed nation peers, according to a Bloomberg survey conducted in early December, of 20 investors, traders and strategists.

Currencies, however, may struggle to stay in front. Fed actions will remain key in determining the fate of what has been the strongest equity rally for emerging market stocks in eight years.

While EMs have weathered President Donald Trump’s protectionist rhetoric, investors will be monitoring his policy moves.

“The EM rally we saw last year will probably extend into 2018, but after a period of strong growth and low inflation, some adjustment will be inevitable,” Hideo Shimomura, chief fund manager at Tokyo-based Mitsubishi UFJ Kokusai Asset Management, was quoted as saying.

“While stocks and currencies in developing nations are on track for their best year since 2009, investors may become more selective in 2018 as headwinds like Fed tightening weaken the appeal of EMs.

“What happens with China–where authorities are battling against debt and President Xi Jinping is cementing his power–has edged up in the rankings,’’ Hideo said. EMs have also weathered geopolitical tensions from the Middle East to the Korean peninsula.