Driven by a bourgeoning middle class, Asia is a force to be reckoned with. The shift of economic activity away from developed markets such as Europe and the US to emerging markets, particularly those in Asia, has facilitated global integration — but with that, a fierce battle for business on a global scale.
It’s no surprise that emerging markets in Asia are all the rage. Driven by rapid urbanisation, these emerging markets are increasing their contribution to global growth, which adds to their allure. China is undoubtedly the dominant player. Officially cited as the world’s largest economy, its significance within the global marketplace is undisputed. Perhaps this shouldn’t be a surprise given its massive population advantage. But what remains startling is its sustained pace of growth since initial market reforms were introduced in 1978 – no doubt a result of a rapid period of industrialisation and urbanisation. Since 2000, China has achieved close to 10% real GDP growth per annum and has rapidly overtaken global powerhouses – Germany and Japan to name a couple.
The ‘winners’ have been those commodity-exporting countries (think Australia) who have fed China’s insatiable appetite for materials, such as iron ore and coal – the so-called ‘commodity super cycle’.
With increased household expenditure, urban wage growth, individual economic welfare, and a strong GDP, urbanisation will continue to be the focus of development within these emerging economies.
A more direct investment approach will be the next chapter in the Chinese growth storybook. Looking at emerging markets more broadly, the opportunity lies in being able to identify companies with above-average sales and earnings growth prospects, and strong business models with competitive advantages. Companies that offer a sustainable high dividend yield will be even more attractive as an investment option.
Companies that can address this burgeoning aspirational demand – whether in clothing, food or technology will be well placed to benefit from the emergence of this middle class, and are more likely to be local champions that can provide affordable domestic brands.
A growing GDP coupled with an emerging middle class will also undoubtedly lead to a growing demand for savings products. For instance, low insurance penetration across the Asian region, combined with favourable demographic changes supports strong growth potential in the medium term.
Indeed, China’s determination to open its capital markets suggests that there are strong medium term growth opportunities for the more strongly capitalized institutions.