Rapid growth in China post-COVID makes it ripe for investment

In January 2020 as the world began to learn of COVID-19, many market observers predicted a challenging year for Asia. While there continue to be headwinds from the health and economic crisis, Asia, and China in particular, has demonstrated comparatively advantageous resilience.

Asian markets are expected to be the fastest to recover from the pandemic. Being “first in and first out” of COVID-19, China is the only country among the G20 that is thought by the Organisation for Economic Co-operation and Development (OECD) to have increased GDP in 2020.

By contrast, Germany’s economy is expected to have contracted by 5.5% and the United Kingdom is anticipated to have declined by 11.2%. Of the G20, excluding China, South Korea and Indonesia are expected to be among the best performing economies, albeit their GDP is still expected to have declined by 1.1% and 2.4%, respectively.

The resilience of Asian economies has reinforced our bullish view and we remain enthusiastic about the long-term trends that will continue driving China and Southeast Asia’s growth.

There are approximately 4.3 billion people living across Asia, including 1.4 billion alone in China – more than the total combined populations of North America, South America, Europe and Japan. With its immense population, including the highest number of internet users in the world, China produces, collects and analyzes more data than any other country across the globe. This amount of data is spurring an accelerating adoption of next-generation technologies in China and is one of the key reasons why it is the leading implementer of 5G, Artificial Intelligence, Autonomous Mobility, FinTech and Industry 4.0 technologies by both speed and scale.

Further, while the ongoing decoupling between the US and China will be highly complex and challenging in the near-term, we expect it to unlock greater investment opportunities in both countries over the longer-term. The US is the world’s largest economy, serves as the global reserve currency, boasts the most efficient financial markets in the world and its long-term prospects remain very bright.

The US economy is expected to recover and reach pre-pandemic levels by mid-2021. There are few, if any, countries better equipped to capitalize on the rebound than the US, as Americans have accumulated $2 trillion in new savings since February, which is roughly 10% of GDP waiting to be spent.

China has delivered strong and impressive GDP growth over the last decade, surpassing Japan to become the second largest global economy. Yet, China’s per capita nominal GDP is still only one-sixth of the US and a quarter of Japan’s. Many healthcare and consumption per capita metrics are still a fraction of developed economies, leaving ample room for sustained long-term growth.

Rising incomes and more affluent consumers in China are expected to lead to a rise in demand for more premium goods and services. The number of middle-class households in China is forecast to grow at a 10% compound annual growth rate (CAGR) as 600 million lower income households join China’s existing hundreds of millions of middle class citizens.

This demographic shift is expected to lead to a rise in demand for more premium, healthy and convenient food and drink.

China’s healthcare market is growing fast and is expected to become the largest healthcare market in the world in a decade, driven by an ageing population, rising middle class, and increasing penetration of commercial healthcare insurance. China’s healthcare sector is expected to be worth $1.7 trillion in 2023, and grow well above the rate of the overall economy as demand for medical treatments far exceed supply of doctors and facilities across all medical fields. Meeting this demand will require significant investments and innovations.

Apart from China, investors should focus on the ASEAN-6 countries of Singapore, Malaysia, Thailand, Vietnam, Indonesia and the Philippines. Home to 650 million people across 11 countries, ASEAN possesses the world’s third largest population and its nominal GDP has doubled over the last decade to $3.1 trillion, making it the world’s fifth largest economic block. We believe that Southeast Asia is on the cusp of a technology-driven consumption boom with the potential to mirror China’s rapid growth during the early years of this century.

While Asia boasts highly attractive investment characteristics and is home to some of the world’s largest and most valuable companies, it is still largely dominated by small and medium-sized enterprises. This creates a great tailwind for investing in the region, but it also requires dedicated, local expertise that can navigate the operating environment and culture.

With China assuming the role of the leading counterpart to the US in many aspects of the global economy, and with Southeast Asia entering a golden age of demographic driven growth, we believe adequate portfolio exposure to both regions, while continuing to invest in the attractive opportunities across the US and Europe will be key in constructing a balanced asset allocation strategy.

This crisis has reinforced the importance of being diversified across geographies and sectors as a means for achieving superior risk-adjusted returns.