Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 331

Five major drivers making Asia the world’s growth engine

While there has been much talk in recent years about the Asian region and its growth, we believe its potential as an investment opportunity is still under-appreciated, Its fast-evolving structure gives it potential to rival the rest of the world over time.

The IMF has forecast that the Asian region will become the largest contributor to the world’s economic momentum – not just by the rate but also by the size – within the next couple of years. We agree with the spirit of this comment, and when we expect that the US and Asia are increasingly the dominant drivers of world growth.

Furthermore, in a world defined by increased political tensions, the ASEAN group is likely to be more coordinated. Geopolitical issues such as Brexit and the US-China technology rivalry and trade tensions continue to affect many Western economies. However, various countries with the Asian region are well-positioned to navigate these issues and benefit from the ongoing turmoil, most notable of which is supply chain re-orientation towards the south.

Why Asia will become a major growth engine

The major drivers of structural opportunities for investors in Asia over the next few years include:

1. Financial inclusion

The ability for individuals and businesses to access affordable financial services is key for sustainable growth. There has been good progress across the region, although the level of inclusion remains low by developed world standards. In India, for example, the number of deposit accounts has grown from 35% of the adult population in 2011 to 80% in 2017, thanks to the government’s financial inclusion and a 'banking for all' programme. Less encouragingly, many accounts are inactive or have zero balances.

More broadly, this is an opportunity to benefit from the earnings growth that will be experienced by companies that can offer a range of financial products and services over time, starting with basic functionality (deposits, loans, transfer services etc.) all the way to a more progressive proposition, which includes insurance.

2. Domestic consumption and service

The evolving domestic consumption and service trend in the Asian region has resulted in significant benefits for many businesses. On a selective basis, their risk-reward has improved thanks to lower equity valuation premiums (in the last two years) despite solid earnings growth, offering good opportunities for investors. This includes businesses in the technology, e-finance, logistics and consumer discretionary sectors. Other sectors that are likely to benefit include education, leisure and travel, and entertainment and digital such as gaming, videos, etc.

Given that Asia’s economic growth will be increasingly driven by domestic factors rather than external trade, we are increasingly focused on companies that are serving a local customer.

3. R&D and manufacturing in Southeast Asia

Southeast Asia is well-positioned to be the prime beneficiary of the ongoing trade tensions and supply chain reconfiguration, and we are already seeing this manifest itself.

Manufacturing and production is gradually moving inland and towards Southeast Asia, with Foreign Direct Investments (FDI) flowing into countries like Thailand, Indonesia, Malaysia, Philippines, Cambodia and Vietnam.

For example, German automakers are manufacturing various car models in Thailand, which is now an auto-industry hub (for many parts of Asia). Malaysia is becoming a highly credible IT manufacturing hub, and corporates such as Taiwanese power components supplier Delta Electronics is planning to turn its Thailand-based affiliate into a production subsidiary to diversify from its production bases in mainland China.

Vietnam in particular has an emerging manufacturing and exports sector that is yet to flourish at a larger scale. However it has a GDP per capita similar to China’s 11 years ago, and is growing at 7% a year. The potential of such centres is one of the most exciting in Asia, as they offer new markets for rising consumption and stronger trade related opportunities for investors.

ASEAN’s rise is also empowered by an emerging technology economy, which is seeing investments in areas such as research and development (R&D) activities and e-commerce including fintech. Apple has recently established its first Indonesian R&D facility; Dyson has opened a technology centre in Singapore; Nissan is starting an R&D facility in Thailand; and Samsung is building an R&D centre for mobile phones in Vietnam. Google is moving its Pixel smartphones production out of China to Vietnam to avoid higher manufacturing costs and build a cheaper supply chain in Southeast Asia.

These initiatives will be further boosted by China’s 'Belt and Road' initiative which will boost infrastructure and connectivity across the region.

4. Infrastructure and agriculture

Infrastructure is a major consideration for the Asian region. It is estimated that the developing parts of Asia will need to invest $1.7 trillion a year until 2030 in infrastructure if it is to maintain its growth momentum sustainably. Currently, it is investing an estimated $880 billion a year, leaving an investment gap of around 2.5% of projected GDP for the next few years, based on United Nations and Asian Development Bank sources. Taking China – which has been investing in infrastructure for the last 20 years – out of this equation, the gap widens to 5%. This represents an investment opportunity at multiple levels, including airports, highways, ports, power systems, transit systems and telecommunications.

A key element will be a regulatory framework to make infrastructure more attractive to private investors and to generate a pipeline of projects for public-private partnerships. 

5. Healthcare and ageing

As well as being home to some of the youngest populations, the Asia Pacific region is also the fastest-ageing region in the world, with some of the oldest societies.

It is currently home to around 550 million people aged 60 or above, just over half of the world’s total senior population. This is expected to increase to around 1.3 billion people aged over 60 by 2050. While Japan is currently a significant proportion of this demographic (where 27% of the population is aged over 60), China is ageing rapidly. At the moment, 17% of the country’s population is aged over 60 and by 2050, this will climb to 35%.

Markets will therefore move from a period where they have benefitted from the 'demographic dividend' to one where they face a 'demographic tax' burden. A direct outcome of this will be demand for elderly healthcare and a framework to support this. For investors, there are two complementary opportunities. Not only is per capita spend growing at a rate higher than economic growth in various parts of Asia (thus creating a large healthcare market) but in many countries, government investment in healthcare is inadequate to keep up with demand, thus creating attractive private sector investment opportunities.

What does the future hold?

Asia is an environment ripe for differentiation and targeted opportunity. We believe that Asian markets are reaching the end of their adjustment process, following a significant period of macro-led weakness in 2018 due to global and idiosyncratic issues in broader emerging markets (such as Turkey and Argentina).

The shift towards floating exchange rates, less reliance on offshore debt, developing central bank credibility, and inflation targeting regimes, creates a strong foundation for investment opportunities in Asia.

However, it requires the ability to embrace short-term macro setbacks and higher levels of volatility, but the opportunity created by these five major sub-themes and the far-reaching economic changes this brings, is significant.

 

George Toubia is Chief Investment Director at Westpac Private Bank. The information is current as 15 October 2019 unless specified otherwise. This article does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it.

 

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

Tariffs are a smokescreen to Trump's real endgame

Behind market volatility and tariff threats lies a deeper strategy. Trump’s real goal isn’t trade reform but managing America's massive debts, preserving bond market confidence, and preparing for potential QE.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Getting rich vs staying rich

Strategies to get rich versus stay rich are markedly different. Here is a look at the five main ways to get rich, including through work, business, investing and luck, as well as those that preserve wealth.

Latest Updates

SMSF strategies

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Superannuation

The huge cost of super tax concessions

The current net annual cost of superannuation tax subsidies is around $40 billion, growing to more than $110 billion by 2060. These subsidies have always been bad policy, representing a waste of taxpayers' money.

Planning

How to avoid inheritance fights

Inspired by the papal conclave, this explores how families can avoid post-death drama through honest conversations, better planning, and trial runs - so there are no surprises when it really matters.

Superannuation

Super contribution splitting

Super contribution splitting allows couples to divide before-tax contributions to super between spouses, maximizing savings. It’s not for everyone, but in the right circumstances, it can be a smart strategy worth exploring.

Economy

Trump vs Powell: Who will blink first?

The US economy faces an unprecedented clash in leadership styles, but the President and Fed Chair could both take a lesson from the other. Not least because the fiscal and monetary authorities need to work together.

Gold

Credit cuts, rising risks, and the case for gold

Shares trade at steep valuations despite higher risks of a recession. Amid doubts that a 60/40 portfolio can still provide enough protection through times of market stress, gold's record shines bright.

Investment strategies

Buffett acolyte warns passive investors of mediocre future returns

While Chris Bloomstan doesn't have the track record of his hero, it's impressive nonetheless. And he's recently warned that today has uncanny resemblances to the 1990s tech bubble and US returns are likely to be disappointing.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.