Ten investment themes for the next decade
ASIA HAS benefitted from globalisation in the past few decades. Urbanisation, the rise of the middle class and clean energy are among the major trends unfolding across the region. These trends are set to continue and are at the base of the ten selected in
From these trends, we identify ten investable themes across Asia that we believe can generate above-average growth irrespective of the macro backdrop:
1. From market stall to super mall: Retail formats are changing and consumers are willing to pay higher prices for better quality, a process called premiumisation. This offers growth opportunities for companies that can react to these trends.
2. Beauty and the East: The pursuit of physical beauty and better health has become big business in Asia. There is steady growth in spending on cosmetic surgery, as well as on general health products. While positive for healthcare companies in general – from hospitals and drug manufacturers to companies selling cosmetic surgery products – the dynamics and intensity of competition vary widely by country and sub-sector.
3. Robots rule: As populations age across North Asia, labour shortages will likely become an issue and automation an urgent priority. Japan and South Korea have 10x as many robots per worker as China. We expect this to change. As wages in China rise and demand for automated processes and service robot rises, more companies have jumped into this market. We see numerous applications for virtual reality and all are in need of OLED screens.
4. Financial inclusion: More Asians have better access to a wider range of financial services. This benefits banks, insurers and asset managers in India, Indonesia and the Philippines.
5. Travel and exploration: An appetite for discovery and the concept of travel as a social status are driving the travel business in Asia. Asians are travelling more and booking more trips through online travel agents. Regional networks have started to emerge. Moretravel also benefits duty free shops and makers of luggage.
6. Defence on the offence: Asia’s total defence spending has increased 75 per cent over the last decade, growing significantly faster than the Americas and Europe.
The defence industry has attractions for investors, such as relatively high barriers to entry, few competitors, relatively visible and secure revenue stream and a continuous product development roadmap. The companies that stand to benefit most are in China, South Korea and India.
7. New energy: Demand for renewable energy is rising as countries commit to decarbonisingtheir power mix. Wind and solar are the obvious growth sectors, but the volatility in the energythey generate requires a smarter electricity grid (good news for the makers of this specialised equipment).
8. Charge me (EVs): Electric vehicles sales are set for a dramatic rise, led by China amid declining battery prices and environmental concerns. This benefits battery makers as well as component makers that benefit from rising electronic content in cars.
9. New media models: More people, especially in China, are now willing to pay for online video and music content. This marks a fundamental move away from the old advertising model and offers growth opportunities for online portals and content providers.
10. Asia’s global challengers: The region’s growth has allowed for globally competitive companies in a variety of industries. However, old competitive advantages such as low labour costs, are starting to erode.
Innovation, clever marketing and ability to manage global supply chains are becoming increasingly important factors. Across Asia, a few select companies are set to emerge as global challengers in their respective industries.
Herald van der Linde, the writer, is head of Equity Strategy, Asia Pacific, HSBC
