Asia Rising

The centre of global economic activity has seen a clear shift away from Developed Markets and towards Emerging Markets since the turn of the century. China has been at the heart of this and today stands as the most important emerging market. However, the traditional drivers of growth that have propelled Emerging Markets to this prominence are becoming unsustainable.

In China, for instance, the reliance on Fixed Asset Investment as the primary driver for growth is being tested. The economy has become unbalanced, debt levels are high, the allocation of resources is sub-optimal and pollution is a challenge. China’s next stage of development will be driven more by services and domestic consumption.

This transition will not be without its challenges, but certain factors are supportive. In China, wage growth has been very strong and income per capita is now reaching levels at which domestic consumption typically starts to grow quickly. Discretionary spending is expected to account for close to 50 per cent of a household’s total expenditure in urban China by 2025, up from a third in 2000.

More broadly in Asia, the middle class is expected to rise from 525 million in 2009 to over 1.7 billion by 2020. This megatrend is about the rise of the middle class and, with it, the rise of aspirational demand.

As domestic consumption grows in importance, it will present significant and new investment opportunities. Sectors and companies that benefitted from the old drivers of growth may not be among the winners going forward. Several interesting sectors are already appearing, including fashion, technology, financials services and tourism.

It’s important to recognize that middle class demand will increasingly be met by affordable local brands. In fashion, companies such as Anta Sports – the leading domestic sportswear brand, or Cosmo Lady – the leader in ladies intimate wear, are worth calling out. Other locally-listed sectors to watch are food and beverages. One point to note is that when participating in this next stage of growth, a more direct investment approach will be required.

Investors should also be mindful of the benefit of an active approach as well as a strategy that can help manage the more volatile Emerging Markets universe.

Important information: The content of this publication are the opinions of the writer and is intended as general information only which does not take into account the personal investment objectives, financial situation or needs of any person. It is dated September 2015, is given in good faith and is derived from sources believed to be accurate as at this date, which may be subject to change. It should not be considered to be a comprehensive statement on any matter and should not be relied on as such. Neither Zurich Australia Limited ABN 92 000 010 195 AFSL 232510, nor Zurich Investment Management Limited ABN 56 063 278 400 AFSL 232511 of 5 Blue Street North Sydney NSW 2060, nor any of its related entities, employees or directors (Zurich) give any warranty of reliability or accuracy nor accept any responsibility arising in any way including by reason of negligence for errors and omissions. Zurich recommends investors seek advice from appropriately qualified financial advisers. Zurich and its related entities receive remuneration such as fees, charges and premiums for the financial products which they issue. Details of these payments can be found in the relevant fund Product Disclosure Statement. No part of this document may be reproduced without prior written permission from Zurich.

Past performance is not reliable indicator of future performance. CSTT – 010533-2015