Emerging Asia — opportunities beyond the headlines

Asia lies close to many of the world’s current fault lines, which is one reason investors approach it nervously. DALPHIN HOU of Foord Singapore argues that this wariness may be obscuring a simpler point: in a more fractured world, the region’s importance may be growing, not shrinking.

Investors are being asked to make long-term decisions in a murkier world. Growth is uneven, inflation less predictable and geopolitics no longer mere background noise — it now shows up in energy prices, freight costs and the price investors are willing to pay for the future. 

Asia, sitting as it does near trade disputes, technology controls, contested shipping lanes and the rivalry between America and China, can seem more of a complication than an opportunity. But for all the talk of diversification and de-risking, much of the world still depends on Asia to make things, move things and, increasingly, to buy them too.

Dependence on Asia is easiest to see in the digital economy, which, for all its lofty language, still relies on a great deal of hard physical effort. Chips must be made, packaged, tested and shipped. Data centres need memory, storage and power. Networks need hardware as well as software. Much of that work remains concentrated in North Asia. Taiwan and South Korea are relevant because they do difficult things, at scale, that others cannot quickly copy. In a world more anxious about resilience and security of supply, that matters more, not less.

China is altogether a more complicated but also more interesting, story. The case for investing there is not that all is suddenly well. In fact, the property development sector remains weak, confidence has been damaged and foreign investors have good reason to be cautious. This, however, will not always be so. Chinese households still spend a much smaller share of national income than households in richer economies, saving more. Even a modest shift towards spending more at home could matter in an economy of that size. The point is not that China is on the verge of a golden age of investment — rather, when share prices already incorporate too much bad news, investors do not need perfection for the investment maths to work.

There is also a simpler portfolio point to be made for investment in in the region. Many portfolios described as global have become overly concentrated. Whether through indices or conviction, they own several versions of the same American theme: large technology firms, expensive growth and the assumption that yesterday’s winners will go on winning. American exceptionalism has been a profitable trade while it has worked, but it has also made diversification a sideshow. Asia outside of Japan offers something genuinely different: different industries, different valuations and different routes to growth. Therefore, investing in the region is not merely another way of buying the same idea.

Supply chains are undoubtedly fraying at the edges — but this can also strengthen the companies that sit at the centre of regional networks. Platforms that handle shopping, payments, logistics, advertising and entertainment can become more valuable as activity gathers around a few scaled systems. The same is true of industrial hardware: Asian manufacturers of semiconductors, advanced manufacturing equipment and other hard-to-replace components do not become less important in a fractured world, they become more so. 

None of this makes emerging Asia an inherently safer place to invest than the West. The investment thesis is rather that much of the region’s risk is already reflected in prices, with valuations orders of magnitude lower than those of equivalent Western firms. For investors whose portfolios have become crowded into the same American trade, the Foord Asia ex-Japan Fund offers another way to spread risk: through Asia’s industrial strength, its underappreciated consumer markets and a set of businesses whose prospects may be better than the headlines allow.