The Asia opportunity: looking for smarter growth

The balance of the world economy is arguably shifting eastwards. And yet, despite Asia’s bright prospects, we believe many investors overlook the potential opportunities in the region.

Recent developments in China have arguably influenced investor sentiment towards Asia, along with concerns about the region’s vulnerability to US interest rate rises and the US dollar. But, from our perspective, we believe that this negative sentiment and stockmarket weakness could present interesting opportunities for investors looking beyond near-term uncertainty.

The impact of China

As the world’s second-largest economy, China’s fortunes have a significant impact on the rest of the world, as well as its Asian neighbours.

This year, worries about a slowdown in China’s economy and ongoing geopolitical tensions with the US over issues such as trade, and Taiwan, have been a drag on the Chinese equity market. These factors have added to investors’ nervousness about Chinese policymaking. 

Disappointment about China’s reopening after COVID-19 also played a part. There were notable differences between China’s COVID experience and those in the West, meaning there was unlikely to be the same bounce back in manufacturing sectors when the restrictions were lifted.

But where we have seen a rebound is in the services sector, demand for travel and restaurants has been much stronger this year than 12 months’ ago. Healthy retail sales figures provide some encouragement that the government’s goal of moving towards a consumption-driven economy is making progress.

Opportunities amid uncertainty

While there are risks associated with investing in China today, we believe uncertainty means attractive long-term opportunities. Its government wants the economy to become less dependent on the real estate sector, and the shift to new growth engines such as the energy transition, which is likely, in our view, to present opportunities in areas like solar, wind power, electric vehicles (EVs) for example. We believe there are fantastic opportunities to find attractively valued Chinese companies that can potentially participate in these future trends.

Beyond China

We’re excited by developments across the region too. In South Korea, low currency valuations means we find stock-specific equity valuations to be attractive here.

In our view, there are many interesting, markets to discover in Asia, like Indonesia, a fast-growing economy with favorable demographics. The country is benefiting from infrastructure spending and demand for minerals used in the energy transition. 

India meanwhile offers a broad and deep opportunity set, spanning a wide range of sectors such as automotive, cement, hospital, infrastructure and financial services. We believe it’s an excellent hunting ground for long-term investors. 

Investing with conviction

When it comes to opportunities across Asia, we believe that conviction is critical to successful investing. At M&G our fund managers select investments from a carefully curated list of more than 450 companies in Asia, excluding Japan, that we’ve been tracking, in some cases, for more than 30 years.

Importantly, they don’t forecast the future, but given the current pessimism about China, we believe exciting long-term prospects of Asia are being overlooked, creating attractive opportunities for experienced, selective investors.

The value of investments will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested. The views expressed in this document should not be taken as a recommendation, advice or forecast. If you’re unsure about the suitability of your investment, speak to your financial adviser.