Opportunities in Asia's economies

In contrast to the developed market gloom, the Asia-Pacific region is, we believe, different: there's a powerful 'reform' agenda creating specific catalysts which may drive markets there. With changes of leadership in China, Thailand, India and Indonesia, a region-wide clampdown on corruption and a drive to improve efficiency, investor perceptions are beginning to shift for the better, along with share prices.

By InvestSMART · 3 Feb 2015

By InvestSMART ·
3 Feb 2015

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Unfortunately, in recent times, developed markets have been veering on a downwards trajectory as global growth concerns come to the fore once again. The negativity is built on a number of fronts: geopolitical issues and poor macro-economic numbers adding fuel to deflationary fears in the Eurozone; the possibility of disorderly sell-off as the US Fed starts to raise interest rates; idiosyncratic scenarios such as ISIS and Ebola materially impacting investor sentiment.

In contrast to the developed market gloom, the Asia-Pacific region is, we believe, different: there’s a powerful ‘reform’ agenda creating specific catalysts which may drive markets there. With changes of leadership in China, Thailand, India and Indonesia, a region-wide clampdown on corruption and a drive to improve efficiency, investor perceptions are beginning to shift for the better, along with share prices. The improving backdrop warrants a closer look.

Chinese SOEs – the lumbering giants are getting fit
State-owned enterprises (SOEs) have been instrumental in the Chinese economic growth story. Recently however, there has been a drive to reshape these bloated structures into companies focused on shareholders rather than market share or job creation. The hope is those SOEs with improving operating efficiency should contribute to China’s economic growth, reinvigorate private sector investment and help revitalise the economy by creating a more competitive business environment. Coupled with President Xi Jinping’s well-publicised anti-corruption measures, this is likely to improve investor returns in the medium-term. The SOE, PetroChina, is one of our top picks. The new management, installed in 2013, is more focused on the returns from invested capital, which should resonate well with external shareholders. Other SOE energy providers that have made positive progress in restructuring have outperformed the overall market. Furthermore, we believe PetroChina is well positioned to benefit from recent gas pricing reform: the government is raising gas prices by effectively linking them to oil.

India – powering forward
Across the Bay of Bengal, ‘Modi Mania’ for the newly-elected Prime Minister, Narendra Modi, is beginning to drive real change in political and economic attitudes. Expectations are high, and there is already evidence of the new administration beginning to address legacy stalled projects, by simplifying project approval and land-acquisition processes.

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Frequently Asked Questions about this Article…

Why are developed markets currently experiencing a downturn?

Developed markets are facing a downturn due to global growth concerns, geopolitical issues, poor macro-economic numbers, and deflationary fears in the Eurozone. Additionally, potential disorderly sell-offs as the US Fed raises interest rates and specific scenarios like ISIS and Ebola are impacting investor sentiment.

What makes the Asia-Pacific region an attractive investment opportunity?

The Asia-Pacific region is seen as an attractive investment opportunity due to a strong reform agenda, leadership changes in countries like China, Thailand, India, and Indonesia, and efforts to combat corruption and improve efficiency. These factors are positively shifting investor perceptions and share prices.

How are Chinese state-owned enterprises (SOEs) changing to boost economic growth?

Chinese SOEs are undergoing restructuring to focus more on shareholder returns rather than market share or job creation. This includes improving operating efficiency and aligning with President Xi Jinping’s anti-corruption measures, which is expected to enhance investor returns in the medium-term.

Why is PetroChina considered a top investment pick?

PetroChina is considered a top investment pick due to its new management's focus on returns from invested capital, which aligns well with shareholder interests. Additionally, PetroChina is well positioned to benefit from recent gas pricing reforms that link gas prices to oil.

What impact is Narendra Modi having on India's economy?

Narendra Modi's election as Prime Minister is driving significant political and economic changes in India. His administration is addressing stalled projects by simplifying project approval and land-acquisition processes, which is fostering a more favorable investment environment.

How are anti-corruption measures in Asia affecting investor confidence?

Anti-corruption measures in Asia, particularly in China, are improving investor confidence by creating a more transparent and efficient business environment. This is expected to lead to better investor returns and a more competitive market.

What role do leadership changes play in Asia's economic reform?

Leadership changes in countries like China, Thailand, India, and Indonesia are pivotal in driving economic reform. New leaders are implementing policies to combat corruption and improve efficiency, which are crucial for fostering economic growth and attracting investment.

How is the gas pricing reform in China benefiting energy companies?

The gas pricing reform in China benefits energy companies by linking gas prices to oil, which can lead to increased profitability. Companies like PetroChina are well positioned to take advantage of these reforms, potentially leading to better financial performance and investor returns.