All the world's economies and markets suffered at the start of Russia's invasion of Ukraine, but the European Union and United Kingdom suffered the most. The conflict in Ukraine threatens to derail Europe's economic recovery after Covid and if the conflict in Europe gets worse, it could significantly affect financial institutions and liquidity in Europe.
We at Astra prioritize the safekeeping of our clients’ monies. For example, we use the Investors Trust platform, which keeps funds in segregated accounts for clients in the US. Also, we are continuing to research alternative investment options for our clients to invest into to reduce risk and increase returns as hopefully inflation peaks in 2023.
We are looking for strategies to diversify clients’ portfolios to take advantage of the numerous investment opportunities in other markets. We are looking for markets and sectors that are politically stable, minimally affected by the conflict in Europe, undervalued, and have the potential for growth as inflation reduces. We are convinced that Asian markets fit these criteria.
We can see here that Asia Pacific (-15.53%) outperforms Europe (-16.44%), USA (-22.86%), and the rest of the World (19.61%) on year-to-date chart.
And we will discuss here why we believe Asian Markets are better alternative for your investments.
Asia is still underrepresented in both equity, bond portfolios, and benchmarks. Despite this, compared to Western nations, Asian assets are attractively valued. In terms of both population and GDP, Asia is the region that is growing the quickest worldwide. It is anticipated that South Asia and East Asia, two subregions of Asia, would resume their pre-pandemic economic growth rates, while Southeast Asia will be the fastest growing economy.
GDP Growth Rate and Inflation % per year (from Asian Development Bank)
The middle class is often said to be under threat in the United States, yet it is very much alive and well in Asia. The middle class is very slowly expanding in Europe and the Americas, according to Brookings Institution study.
Only in Asia can you have middle classes that are both sizable and expanding quickly. By 2030, there are projected to be 3.5 billion middle-class Asians, up from an estimated 2 billion in 2020. In contrast, it is anticipated that the number of middle-class people in the Americas would reach 647 million in 2020 and 689 million in 2030.
In 2030, two in three members of the middle class will be Asian.
The region is no longer simply the producer of goods for the western consumer, its own booming middle class is fueling strong domestic consumption (Pictet Asset Management).
Due to the Covid-19 pandemic, most countries have imposed stringent lockdown measures to contain the spread of the virus. Global economic activity has been impacted significantly. The pandemic had a particularly devastating impact on markets in Europe and the US, where unemployment rates reached their greatest levels in decades and economic indicators experienced significant contractions. Asia has performed somewhat better than other markets, which are still having trouble recovering from the effects of the economic downturn. Additionally, Asia is recovering well; Taiwan, Hong Kong, Korea, Singapore, and Vietnam are among the top 20 nations for booster immunization rates (Nikkei Asia).
In recent years, Asia has become a fertile ground for technological development thanks to government support and an opening up of capital markets to foreign investment. China, Taiwan, and South Korea have changed from being global product producers to becoming disruptive technology creators in fields like blockchain, big data, digital payments, and 5G, among others. In the field of technology, organizations like Alibaba, Samsung, and Huawei are leaders of the highest caliber. One of the few industries in South Korea where earnings have surprised positively is technology. The chip orders have been steady in Taiwan's technology industry (BlackRock).
Here are the countries where we are currently focusing in:
Vietnam's stock index has fallen more than 20% this year, making it an excellent time to consider investing in the country. Those losses, however, are broadly consistent with those of its global peers, as investors reposition for safety in the face of rising interest rates and fears of a global recession.
Banking stocks have a high potential for growth in the mass market because more than half of Vietnam's population is currently "underserved" in banking, whereas retail stocks are expected to see a strong recovery in earnings due to post-pandemic pent-up demand.
Southeast Asia's economy has been among the fastest growing in recent years, and it will continue to be so. In 2020, the Vietnamese economy topped even China, and did not see a single quarter of economic contraction despite the global pandemic.
Chart 1.2 Vietnam Index vs S&P 500 (SPX) Jan. 01, 2022 – October 19, 2022 (YTD)
Political stability and macro policy, along with factors such as the rapid growth of Vietnam’s middle class create a “strong platform” for the country to see GDP growth of 6% to 7%. While inflation is a big concern globally in countries like the U.S and UK, Vietnam appears to have it “under control” for now.
Vietnam’s long term investment story remains the same and predicted to be the ‘next China’ in terms of economic growth in the next 10-20 years.
We published an interview with Dragon Capital Vietnam’s portfolio manager, Le Yen Quynh, in which she discussed the fund and Vietnam's economic outlook. If you haven't seen it yet, check out the Vietnam Equity Fund Market Outlook on the Astra Group website.
You may also check our summary during the Vietnam Access Conference published by our Managing Director, James Hartland.
Because of their many similarities, Hong Kong and Singapore have long been rivals in the race to be Asia's leading financial center. However, recent events in Hong Kong, particularly political unrest, have undoubtedly harmed the city's reputation as "Asia's world city." This, combined with the economic slowdown in Mainland China, caused businesses to leave Hong Kong and seek opportunities elsewhere in Asia. This is where Singapore comes in. While Hong Kong remains the gateway to mainland China, Singapore is arguably better positioned as a base for accessing the rest of Asia.
Chart 1.3 Straits Times Index vs S&P 500 (SPX) Jan. 01, 2022 – October 19, 2022 (YTD)
Singapore now has an advantage from political stability and freedom from outside interference. It provides a transparent common law legal system, low levels of corruption, low taxes, and a business-friendly environment.
With China's economy slowing, Singapore may be on the verge of joining the next wave of fast-growing economies. Rising costs in China and its trade war with the United States have accelerated investment in rapidly expanding Southeast Asian countries such as Singapore and Vietnam. Particularly, the real estate sector of Singapore initially benefited from this.
Singapore, as a member of the ASEAN economic bloc, has preferential access to these markets and is strategically located as a regional hub. Singapore, as opposed to Hong Kong, has stronger geographic and cultural ties to India, another Asian powerhouse.
Please contact us if you are interested in stable real estate investments in Singapore that offer a 3-6% dividend yield and are low-risk investments for the next 3-5 years.
We at Astra will continue to look for untapped opportunities in Asian markets, as we have done in Singapore and Vietnam, and will provide you with more investment ideas in various Asian markets. Our investment team is constantly adapting to changing circumstances and continues to actively manage your portfolio through our partnership with expert professionals and fund managers.
We've also begun a policy of holding one-on-one market reviews with clients to discuss their individual portfolios. And we would be delighted to set up a call with you to discuss your investment with us and how our views on Asia and markets in general may affect your investment.