Asia is still underrepresented in most portfolios – and it shouldn’t be
Global financial markets have been turbulent in recent weeks amid investors’ concerns about inflation, major central banks adjusting monetary policies, the ongoing war in Ukraine, Covid lockdowns in China, and weak earnings by some key companies, among other issues.
But after a brief period of sharp losses, most indices appear – for the time being at least – to be stabilizing somewhat.
This is partly due to US President Joe Biden’s current tour of Asia, which seems to have gone down well with markets.
Investor sentiment was given a boost after Biden said he was considering cutting US tariffs on Chinese goods. In addition, while in Tokyo on Monday, he launched a trade initiative with 12 Indo-Pacific countries, in his first major attempt to bolster economic engagement in the region as Washington moves to counter an increasingly influential China.
The Indo-Pacific Economic Framework includes Japan, Australia, New Zealand, South Korea, India, Singapore, Malaysia, Indonesia, Vietnam, the Philippines, Thailand and Brunei.
IPEF contains four pillars: trade; supply chains; clean energy and infrastructure; and tax and anti-corruption.
And in my opinion, it will help reignite interest in the region from global investors.
This is a good thing, as Asia is still underrepresented in most individuals’ portfolios – and it shouldn’t be.
There are four key reasons investors should not ignore Asia.
First, growth in the region will, we believe, continue to outperform the rest of the world. Indeed, according to Oxford Economics, 50% of global economic growth will come from emerging Asia by 2045.
Second, Asia’s own wealth is on the rise. No longer should the region be considered as a producer of goods for other economies – as it has been regarded by some in the past.
It has an increasingly large middle class of its own, which is driving enormous surges in domestic consumption. China and India, says a recent report from the Brookings Institute, will be home to 45% of the global middle class by 2030.
Third, equity valuations are reasonable compared with many developed markets.
And fourth, there are attractive diversification benefits of including Asian assets. Diversifying across regions, asset classes, and sectors is the optimum way for any investor to mitigate risk and capitalise on opportunities. Diversifying makes even more sense when global markets are volatile.
While many commentators around the world have already opined that Biden’s new 12-nation economic framework is more style over substance – which remains to be seen – the tone and content of his speech at the launch will serve to remind global investors that being underexposed to Asia in their portfolios could be a costly oversight.
As ever, a good fund manager will help investors seek the most rewarding opportunities the region has to offer.
Nigel Green is the founder of deVere Group.
This article was originally published on Asia Times. Views in this article are author’s own and do not necessarily reflect CGS policy.