Matthews Asia Pacific Tiger was added to the Chelsea Core Selection in October 2015 and the Aggressive Growth Junior EasyISA in March 2016.
Here, Robert Horrocks, chief investment officer of Matthews Asia, discusses how the long-term fundamentals of growth persist in Asia, even as short-term market moves may be clouded by sensationalism and hype.
Much of our time at the moment involves communicating our views on long-term investing in Asia in the face of sensational headlines and, at times, bleak sentiment, driven by changes of course in U.S. policy, Robert says.
But I believe investors really must stop thinking of Asia as being driven by exports. They are not insignificant, but they are a secondary concern. Likewise, Asia is not driven by the US. Asia is far too large to truly be driven by anything other than its internal dynamics.
What drives growth, in my opinion, is the desire and ability of people to work hard, learn and better their standards of living. This desire remains unchecked in Asia. Opportunities, too, regardless of any trade issues, remain plentiful in the domestic economies. Over the long term, thrift, productivity and reform – those are the things that count.”
What the changing political landscape is causing is a shift in correlations. This has been palpable in recent weeks, especially compared to 10-year averages. For Asia is now showing little or no correlation with the US.
Is this the way that international markets will evolve – with the US, Europe and Asia each increasingly dancing to their own tune? That may be expecting too much too quickly, but it is something to monitor.
The markets clearly seem to be de-linking Asia and the US to an extent. And that is not too far removed from the rhetoric of recently-elected president Donald Trump: “Our companies can’t compete with them now because our currency is too strong. And it’s killing us.” Agree or not with the analytical framework behind these words, this is a strong sentiment that seems pervasive in the new US administration.
To those that focus just on the past five years, it seems a bizarre thing to say – US company results have outperformed Asia over that time period. But is that the true trend or just a short-term blip?
The story is the same when we look at dividends per share—superior long-term growth; inferior short-term growth—but investors are allocating their money as if the short-term trend is now the long-term reality.
For sure, US Federal Reserve policy and the dollar do play a key role in global monetary policy. But it is becoming increasingly narrow-minded to think of the US as the centre of the world.
One might make the argument that a more protectionist US is already thinking about retreating from that role anyway. And maybe China will step into the fray. But just on plain data: the International Monetary Fund reckons that the US will have added about US$3 trillion to GDP in the five years to end 2016; China will have added US$3.9 trillion. Emerging and developing Asia together added US$4.7 trillion.
Although the US was the second-largest contributor to growth in terms of single countries, in third place was India and in fourth place South Korea. Other Asian countries proliferate in the leading growers – from Vietnam to Bangladesh.
If the world is to split into trading blocs—the Americas, Europe, and Asia—it is likely that Asia will be the most vibrant of the three. So we continue to focus on the domestic companies. Demand will still be growing quickly, and a weak US dollar policy would mean that would likely be the case even more so in US$ terms for domestic businesses.
For investors in Asian companies, this is an enticing prospect. Growth will likely be more favourably skewed towards the capitalist in Asia than it has been in the immediate past, so the investor will share more of the growth of the region’s consumer. And it is still in the consumer-facing businesses that we typically find to be the most commercially-structured industries, best-managed companies and highest return-on-capital businesses.
Despite this potential for growth and improved returns to capital, the short-term worries still remain – tariffs, trade wars and the short-term impact of policies that might further strengthen the dollar.
One can reasonably expect volatility to increase – statistical measures of volatility in the US are extremely low as I write. Policy moves are uncertain. And while I am confident that the growth in Asia will assert itself on profits and investment returns over time, I cannot say with any confidence that the next few months will be a smooth ride.
But until I see the fundamentals driving domestic growth in Asia change significantly, I continue to believe the region offers plenty of investment opportunities. The long-term growth outlook persists in Asia, even as short-term market moves might be clouded by sensationalism and hype.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Robert's views are his own and do not constitute financial advice.