Why Asian Investments Are Going from Strength to Strength
In 1997, the fast-developing Asian economies hit a financial crisis. Investors, believing that a period of good fortune had failed, began to jump ship. But two decades later, Asia is an economic powerhouse, set to dominate the coming century. And, with Asian investments doing well, it’s a very good place to buy into.
Political and Social Underpinnings
The recent history of the Asian economy has been a dramatic one. In 1997, the region was hit by a spreading wave of financial disaster.
It began in Thailand, which was effectively bankrupt even before its currency collapsed. Knock-on effects caused slumping currencies and devalued markets across east Asia.
Western traders, who until then had been spellbound by the rising power of the east, hastily backed off.
Within two years, recovery was underway.
The regional economy rebuilt to the point where it was able to weather the 2007-8 financial crash far better than many economies.
The overall trend of the past 20 years has been one of impressive growth, due in large part to China’s rise as a global economic powerhouse. Modernizing economic manoeuvres by Chinese governments and the expansion of the country’s tech sector have made it an important foundation for wider Asian economic performance.
The importance of politics is also reflected in India and Indonesia. There, the recent re- election of incumbent governments has ensured a stability that boosts the economy.
Many Asian governments give their central banks a relatively high degree of freedom to act compared with those in the west, and this has helped the region to grow despite the global economy’s struggles.
Socially, East Asia is seeing a huge growth in its middle class.
This has a two-way relationship with economic growth, as the growth bolsters the emergence of this class, while middle-class spending habits support economic growth.
Members of the Asian middle class have lower average household debt than those in the west, again contributing to the area’s economic strength.
Economic Growth
So what are the economic results of these developments? Firstly, Asian companies (and Asian investments) are thriving.
During the past decade, 11 of the top 20 markets for initial public offerings (IPOs) have been in Asia, as startups took off. Asian companies are the largest users of global public equity markets. By the end of 2017, nearly half of the world’s listed companies were listed on Asian stock exchanges, and between them they had around 40% of market capitalization.
These aren’t just flash-in-the-pan companies but are creating genuine wealth for investors.
The net profit on companies listed in Asia has risen by more than 30 times over in the past 20 years.
China has been home to much of this activity, with the bulk of IPOs as well as a growing wave of technological innovation, including in areas such as green energy and self-driving cars.
This has had a knock-on effect on national economies. Asia now has the largest share of foreign currency reserves in the emerging markets.
The credit ratings of Asian countries have been good and improving.
With their companies thriving, governments have reaped the benefits of economic fortune, creating a virtuous spiral of economic health and political stability.
In response, global bond indices have included a growing proportion of Asian bonds.
Two of J. P. Morgan’s indices for emerging market bonds are made up 60% and 45% respectively of Asian bonds. Chinese bonds in particular are drawing the interest of investors.
Asia’s Economic Future
The balance of the global economy is tipping towards Asia.
China, India, and Indonesia will soon be three out of the five largest economies by purchasing power, thanks to their large populations, booming economics, and growing middle classes.
Several studies have concluded that, while Asia currently represents just over a third of the world’s GDP, by 2050 it will represent half of it.
Treated as a single block, Asia is likely to be the new hegemonic power within the global economy. Of course, it isn’t a single united region.
The different agendas, policies, and economic conditions of different nations mean that some will do better than others as they compete with each other as well as with the outside world. And as with any such grand prediction, there’s always the possibility of an unexpected economic setback.
But Asia has not just survived two periods of economic disaster in the space of 22 years, it has thrived despite them.
The continent’s political and social circumstances virtually guarantee that it will remain strong for decades to come, which is great news for those with Asian investments.
Paul Connolly
Paul Connolly has been a journalist for more than 20 years, as a reporter and editor for Argus Media, Reuters, The Times, Associated Newspapers and The Guardian. He has covered Islamic Finance for Reuters in the 1990s. Paul has since helped launch three newspapers, as well as reported from Tokyo, Los Angeles and Stockholm.
