In the wake of the coronavirus, Fidelity's experts pick out some longer-term drivers shaping Asia's role in the world economy.
Investors are not finding it easy to focus on Asia fundamentals, given important but shorter-term issues such as the US/China trade disputes and the human tragedy of the coronavirus outbreak. Yet the ‘Asian century' is in full swing as the region resumes its age-old place at the centre of our economic world. Asia represents more than half the world's population, most of the world's megacities, and a rising proportion of global GDP - in stark contrast to Europe's anaemic growth and projected fall in population over the next decade.
So what long-term forces are getting overlooked in the current newsflow?
1.Asia's Booming E-commerce Business
Alibaba's 2019 ‘Singles Day' sales extravaganza broke records in 2019 with $38.4bn sales compared to $30.8bn the previous year.[i] Fidelity's experts think that one long-term effect of the coronavirus tragedy may be to increase the penetration of online consumption still further, with online services such as e-tutoring, entertainment, and grocery delivery all receiving a forward push. Asia, with half the world's internet users, is already a nursery of immensely valuable ‘unicorns' ($1 billon value start-ups).[ii]
2.Rising middle class
Asia is getting richer. Of the next 1 billion members of the global middle class, 90% will be in Asia.
This may be the most fundamental trend of all and means that, by 2030, around two thirds of the global middle class are likely to be Asian, a huge shift in economic power in only a generation.
A breakdown of the changing geographical distribution of the growing global middle class is shown below [iii]
Fidelity's experts say this is powering other trends such as the growth of premium local brands in tune with Asia's increasingly affluent consumers.
3.Deepening intraregional trade
Asia's increasing wealth also means economic growth is gradually becoming less dependent on exports to the US and Europe.
"Intra-Asia demand now makes a significant contribution to domestic revenue generation," says Teera Chanpongsang of the Fidelity Asia Fund. Important in itself, this may mean any further trade issues with the US will have less impact.[iv]
This is for investment professionals only and should not be relied upon by private investors. The value of investments can go down as well as up so the client may get back less than they invest. Past performance is not a reliable indicator of future returns. The value of investments in overseas markets can be affected by changes in currency exchange rates. Investments in small and emerging markets can be more volatile than other more developed markets. Investments in Fidelity funds should be made on the basis of the current prospectus, which is available along with the Key Investor Information Document, current annual and semi-annual reports free of charge on request by calling 0800 368 1732. Issued by Financial Administration Services Limited and FIL Pensions Management, authorised and regulated by the Financial Conduct Authority. Fidelity, Fidelity International, the Fidelity International logo and F symbols are trademarks of FIL Limited. UKM0220/26476/SSO/0620
[i] Sherisse Pham, CNN Business, 12 November 2019; cnn.it/2Us7CiM.
[ii] Unicorn data source: McKinsey Global Institute, Asia's Future is Now, July 2019; mck.co/39yKKCn.
[iii] Rising middle class data source: Homi Kharas, The Unprecedented Expansion of the Global Middle Class: An Update, 2017, Brookings, p13, p11, p16
[iv] Intra-regional trade data source: McKinsey Global Institute, Asia's Future is Now, July 2019; mck.co/39yKKCn.