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Four key themes to emerge from Asia’s pre-eminent investment conference

I have recently returned from the 25th CLSA Investors’ Forum in Hong Kong, one of the most comprehensive events of its kind in Asia. The investment conference was attended by over 1,800 investors, providing attendees access to over 700 senior executives from nearly 300 leading companies and industry experts around the world.

Four key themes stood out over the five-day Forum, following numerous insightful presentations and one-on-one conversations with industry leaders.

1. Driverless cars

Driverless cars will be here sooner than many expect, according to Mark Crawford, Chief Engineer for Autonomous Driving Systems at Great Wall Motor Company, the largest producer of driverless cars in China. The US is currently leading the way globally in driverless cars, with self-driving technology development company Waymo (formerly the Google self-driving car project) the main frontrunner. Many major automotive brands including GM, Ford and BMW are spending billions on driverless car capabilities, with the driverless car market expected to reach around US$26 billion by 2024. Conversely, while Uber and Google have undergone trials of driverless cars, following a fatality, Uber has ceased testing. Domestically, driverless cars are not expected to become mainstream in Australia for at least 10 years.

Cost is currently a fundamental issue facing driverless cars, with premium pricing a significant barrier. The sensors surrounding driverless cars are the most expensive component in the manufacturing process. Until these costs are reduced and the total cost is on par with regular automotive vehicles, it will be difficult for them to become mainstream.

The shift towards driverless cars is backed by the universal desire to reduce the number of road fatalities, with 37,000 fatalities in the US every year and a staggering 300,000 in China, highlighting an immense and distressing problem. The US and Chinese governments are supportive of driverless cars due to their increased safety. The Great Wall Motor Company has created a partnership with Baidu to develop a driverless car, aiming to achieve mass production of self-driving automobiles by the end of 2020.

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2. Artificial Intelligence

Many companies discussed the rise of Artificial Intelligence (AI) - what they are doing to capitalise on a trend that will accelerate over the next decade. By 2020, 27% of all Chinese homes will have smart home systems, allowing residents to monitor and manage power usage by configuring systems such as lighting, cooling and heating. Over half will have smart cars. It is clear China intends to be the global leader in AI and is investing significant amounts of capital in research and development. China is joined by the US and the United Kingdom as paving the way. Meanwhile Australia is lagging as few listed domestic companies are considering AI as playing a sizeable role in their future. Appen (ASX:APX) is one of the only companies that provides domestic investors exposure to this thematic.

3. US mid-term elections may provide catalyst for change

The upcoming November US mid-term elections were a popular topic of discussion, with a consensus view that the Democrats will emerge victorious, bringing forward the rising threat of President Trump’s impeachment. Surrounding the mid-term elections is Special Counsel Robert Mueller’s investigation into Russian meddling in the 2016 presidential election, with expectations that the report will be released after the mid-terms, perhaps early next calendar year.

While doubts have been raised about Trump’s ability as US President, his presidency has been positive for the economy, with the S&P 500 Index up 37% since his election. His pro-economic policies are stimulating the US economy to grow at the fastest rate in over a decade, most notable of the policies being the drop in the corporate tax rate from 35% to 21%.

4. Chinese growth and implications for Australia

Compared to last year, the mood on the ground was bearish, with expectations of Chinese growth far less than previous years. There is no doubt Chinese growth is slowing, with 6.5% gross domestic product (GDP) growth this year and expectations around 2019 GDP growth at below 6.3%. The US and China trade war is having a significant short-term impact on China and this will manifest in fourth quarter numbers for the 2018 calendar year, announced early 2019. Chinese manufacturing is slowing as a result of tariffs, with many companies looking to relocate their operations out of China to countries such as Vietnam. This will affect the flow of goods, and to a lesser extent, the consumer.

This slowdown is no great surprise given the Chinese equity market is currently down 30% this calendar year. Overall the outlook for China is weaker than previous years and this will have negative flow on effects in Australia for the resources sector and companies that are exposed to Chinese growth.

 

Chris Stott is the Chief Investment Officer of Wilson Asset Management. This article is for general information only and does not consider the specific circumstances of any individual.

2 Comments

Pete Latham

September 27, 2018

It will be interesting to see if the driverless cars prediction comes to pass. I think the proposal will be akin to authorities saying, here’s a bus or a train service, you won’t need your car anymore. I think the independent nature of Australians in particular, will still want, and choose to have a vehicle that does what they want it to do, and go where and when they want to go and for that reason they will largely shun the driverless car. I think that the tyranny of distance outside the CBDs of major Australian cities will also put a hold on the introduction of electric vehicles, particularly west of the ranges in country, rural and central Australia. The increasing numbers of diesel 4WD vehicles and Grey Nomads wanting vehicles capable of towing Caravans and Campers is an indicator that whilst this idea may gain traction in more densely populated countries, I dont think we will see it happening en masse in Australia anytime soon.
However, we live in interesting times !

Vinay Kolhatkar

September 25, 2018

Re point 3 above, I believe only a third of the Senate seats (35 of 100) are up for re-election in the US midterms. Wouldn't the chance of the Republicans losing the upper house be slim? And unless the Democrats control both houses, impeachment must still look unlikely, for the Senate will acquit Trump if the Democrats succeed in the lower house.

That said, polls have been so wrong in the heartland that even a "sure" lower house victory is never sure; nothing in politics is.


 

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