WHY THE TIGER ECONOMIES ARE POISED TO POUNCE
Henderson Far East Income ’ s Mike Kerley discusses how local Asian companies are challenging multinational brands and driving growth across the region
A FTER SEVEN YEARS
OF FLAT EARNINGS GROWTH , the Asian market is showing signs of life again . The Tiger Economies are waking up and are on the prowl , led by a resurgent China .
Asian stocks , excluding Japan , outperformed the world in 2017 and many analysts believe the region is likely to continue its growth story through 2018 and into 2019 , but of course analyst forecasts are by no means a guarantee of performance .
Asia has historically been geared into whatever the rest of the world has been doing because it was making products and selling them to the rest of the world . The region has done very well out of this but we think this story is at an end .
Firstly , low-cost labour is not low-cost anymore – especially in China , where wage growth has been quite rapid . Secondly , Asia ’ s market share of world-produced goods is so high it can ’ t gain any more market share . As of May last year , Chinese companies accounted for more than 25 % of the global manufacturing industry , while the country was the leading producer of 220 of the world ’ s 500 major industrial products . ( Source : Ministry of Commerce of the People ’ s Republic of China , May 25 , 2017 ).
In terms of growth , where does China go from here ? Firstly , we think local brands will gradually eat into the market share of multinationals in local markets . The next growth leg of Asia will then come from increasing the value of the goods they sell to the rest of the world .
CHINA ’ S GROWTH STORY Historically , Asia has generally been associated with low-cost manufacturing and consumer goods . That ’ s changing . China is at the forefront of this change , and for the first time ever , we believe China will spend more on research and development ( R & D ) this year than the US and within five years we think it may spend more than the EU and US put together ( see chart ). This is a huge shift and it ’ s in new areas , like electric vehicles , renewable energy , healthcare , artificial intelligence and virtual reality – things we will embrace in years to come and that have the potential to become part of our day-to-day lives .
Our belief that China will lead Asia ’ s cutting-edge growth story stems from the increasing number of patents filed from the country , and across the Asian continent . Of course , filing patents does not necessarily equal growth or economic success . But as you can see in the chart , China is producing more robotics on an annual basis than South Korea and the US put together , and
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