Asia equities:

Three investing trends for 2021

In 60 seconds

  • Asian consumption patterns are shifting from basic necessities to higher quality premium brands
  • Growing demand for high-tech products supports a strong outlook for the technology sector in Asia
  • High growth potential in financial sectors in Asian countries where the use of credit as a share of GDP is still low

Asia equities allow investors to gain exposure to a number of secular trends that can drive growth for many companies in Asia.

1. Asian consumption shift to premium goods

One of the most prevalent and sustainable trends in the region is changing consumption patterns.

As Asian economies develop and grow more affluent, consumption and spending patterns are shifting away from basic necessities toward discretionary goods and services.

More specifically, we think that demand is shifting to higher quality premium brands in individual product categories.

Take the example of baijiu, a popular liquor in China. In recent years, demand for premium baijiu brands has increased, driving sales growth in the segment that has outpaced growth in the industry as a whole.

So companies with large market share in the premium segments are well placed to benefit from these trends.

Learn more about Baijiu in ‘Fiery liquor, cool numbers’ here

Baijiu: CAGR growth in sales volume by category, 2018-2023 (f)

Baijiu: CAGR growth in sales volume by category, 2018-2023 (f)

We see similar trends also playing out in other product and service categories like automobiles, home appliances and education sectors across the whole of Asia.

Five sectors to benefit

from consumer demand shift to premium products in Asia

1. Liquor and alcoholic drinks
2. Automobiles
3. Cosmetics
4. Home appliances
5. Education

2. Global tech leaders emerging out of Asia

Another key theme within Asia equities is the emergence of global tech leaders. COVID-19 and geopolitical tensions have highlighted the importance of global supply chain security.

Now, over the past decades, Asia has become an increasingly important and almost irreplaceable part of the global supply chain in selected products.

The majority and arguably the best semiconductor manufacturing facilities globally are located in Asia.

For example, the majority and arguably the best semiconductor manufacturing facilities globally are located in Asia.

There are semiconductor companies in Taiwan and South Korea that are true global industry leaders, and one may even argue that their assets and technology are of strategic importance to the world at large.

At the same time, China is aggressively investing in the semiconductor industry in order to achieve a greater degree of self-sufficiency.

We believe that these factors, combined with growing demand for high-tech products as the world transforms digitally, supports the strong outlook for the technology sector in Asia. And selected companies within the Asia equities space will be good investment candidates for our strategy.

R&D Spending (2019)

R&D Spending (2019)
Source: R&D World, March 2020

3. Credit growth in selected markets

As economies in Asia develop, so will their financial sectors.

In countries like Indonesia and India, the use of credit as a share of GDP is still low compared to developed economies.

This means that for such countries, there is high growth potential for companies operating in the financial sector, and the best run companies here will be most leveraged to such a positive outlook.

Of course, there are many other trends within Asia equities that we have not discussed, such as digital transformation across a number of industries, and significant demographic changes across a number of countries.

We believe these trends provide ample and sustainable growth opportunities for many companies in the Asia equities markets and opportunity set and we hope to capture these opportunities with our stock selection in our Asia equities strategy.

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