Identifying the key themes for tomorrow’s Asia

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By Peter Sartori, head of Equity, Asia at Nikko Asset Management

Asia is evolving rapidly, which has implications for investors globally. As ‘Old Asia’ evolves into ‘New Asia’, investors need to consider where growth will come from in the future. At Nikko Asset Management, we have identified four key themes for tomorrow’s Asia. Taking into consideration demographics, wage growth and a burgeoning middle class that is resulting in changes in patterns of consumption, we view Healthcare, Tourism, Insurance and the Environment as the major investment themes for Asia.

1. Healthcare: An enduring theme
The ageing demographics of certain Asian countries, such as China and Korea, are well-known. To give some idea of the opportunities that the Healthcare sector offers, it currently represents less than 6% of Chinese GDP. This means that the coming decades will require increased availability of healthcare in a region which, according to the World Health Organization, currently has one of the lowest health spends as a percentage of GDP.

Although healthcare spending in the region is currently low, it is growing, with urbanisation driving increased access to medicines.

At the same time, the growing middle class means that people have more money to spend on healthcare. In India, medical infrastructure and facilities are lacking in many areas, but a government campaign is underway to focus on medical investment and improvement of services in rural areas. The government is also starting to privatise hospitals as demand for better healthcare increases, which will underpin growth.

Another key growth driver for healthcare is medical tourism, with five of the top 10 destinations in Asia, according to Patients Beyond Borders. With surgeries in Asia costing a fraction of the price of the same procedure in the US, visitors from developed countries are increasingly looking to the region for more affordable alternatives.

Some might be sceptical about the quality of the healthcare that Asian countries might provide, but in fact, according to the Medical Travel Quality Alliance, in 2013 Asian medical destinations offered more and better medical procedures and care than most other medical destinations. According to Patients Beyond Borders, the global medical tourism market will reach approximately $47bn by the end of 2014.

If countries in the region continue to invest in healthcare infrastructure and medical professionals, Asia stands to benefit considerably from this growing market.
In our view, Healthcare currently provides some of the best investment opportunities in Asia and we expect huge spending over the next two decades due to low penetration and ageing populations.

2. Tourism: Significant arrivals into Asian region
International tourism has recovered to exceed pre-crisis levels. Although Europe still receives the largest number of arrivals at 44.5% of total tourism arrivals worldwide, Asia-Pacific receives the second-largest number at 28.4%2.

In 2011, 283.9 million arrivals were recorded, an increase of 21.5 million from 2010, up 8%. This netted the region $362.6bn in inbound tourism expenditure, equal to 28.9% of the total global inbound expenditure, with Europe at 40%. With ageing populations in many developed countries, most of whom have seen their incomes rise, tourism is likely to continue to be a growth area for Asia-Pacific, particularly given the increasingly large volumes of Chinese tourists.

The number of outbound Chinese tourists has doubled in the past four years and we expect it to double again
over the next five years.

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