Many stock market indices in Asia have performed very well this year compared to developed markets. For example, China’s Shanghai Composite Index is up 59%, India’s Sensex is up 76.5%, Taiwan’s Weighted Index is up 65.5%, Singapore’s Straits Times Index is up 52.2% YTD as of Oct 12th. European indices have risen about 20-30% this year. The S&P 500 has increased 21% YTD. As growth continues to be sluggish in the developed world investors are flocking to Asia for higher returns.
So should you invest in Asia?
The answer to the above question is a resounding Yes. The following 10 reasons were identified by CLSA Asia-Pacific Markets in the CLSA Quarterly, Autumn 2008 report on why one should invest in Asian markets.
1.Asia’s billion boomers – People, Money and Aspirations.
Asian countries are growing and creating middle-class and upper-middle class people with plenty of money and the willingness to spend. The growth in domestic consumption will much be much bigger than the post-World War II growth in the U.S. By 2020, more than 1.2 billion people are projected to have a per-capita GDP of more than $5,000 as the chart shows below:
2. China’s consumers will lead Asian and possibly global recovery as the credit markets are loosened and consumer spending increases. The Chinese middle-class is already spending heavily to improve their standard of living.
3. Asia’s economic size relative to the US is growing fast. Since the 1990s low, its economic size has doubled relative to the US economy. As countries like China, India grow Asia’s economic power will rise.
4. Asia has the money – lots of it. Many Asian countries have current account surpluses while most developed countries have deficits. Countries such as USA, UK have high deficits.
5. Asians have plenty of money at the bank. Unlike American consumers who are deep in debt due to the credit bubble, Asian consumers have money to spend. The chart below shows the loan-deposit ratio of US and Asian banks:
6. Asia is at the start of a demographically driven boost to domestic investment. Hence Asians will take a large role in their own markets as opposed to foreign investors.
7. Countries in Asia are urbanizing rapidly. More and more people are moving from rural areas into urban cities and towns in search of better life. This urbanization process will lead to higher incomes, better educational opportunities and higher spending on the comforts of modern life.
8. Chindia will lead the way.In just 12 years, the combined economies of India and China will equal about 60% of the US economy. As of this result of this, the political and economic power will shift towards the East.
9. In addition to money, Asians are leading the way in the study of hard sciences which include math, engineering, etc. A country needs strong and bright thinkers in hard sciences in order to build a better future. More Asian students enroll in hard science programs in universities than American students.
10.Growing Prominence of Asian markets. In September, FTSE promoted South Korea to Developed Country status. China’s A shares and Taiwan may be added next. Also “Asia ex-Japan’s weight in the global MSCI has climbed from 3.7% to 6.8% during the past 12 years.”
With high savings rate and the strong confidence and eagerness to grow and prosper, Asia presents a multitude of opportunities for foreign investors seeking diversification and growth.
