New era of growth for Asia, say Guinness Asian Equity Fund managers

Asia is changing rapidly from a region known for export-driven growth to a diverse and successful region for investment, according to Guinness Asian Equity Funds’ James Weir and Edmund Harriss.

Income growth in Asia has created a middle class consumer culture, and fixed asset investment is no longer the primary driver for economic growth.

However, investors seem jaded about Asia’s prospects, and have switched between excess optimism and excess pessimism without recognizing the true value of what’s unfolding there.

Asia has undergone a shift in perception in recent years, from a region which is known for its earnings growth but can be volatile and suffers from poor corporate governance, to a region which is represented in many investors’ allocations.

It’s now known for much more than just growth, with many firms offering decent cash-flow returns, good dividends, and better capital structures than some counterparts in the West. Indeed, certainly from the perspective of leverage, perhaps Asia should be seen as less risky than the West these days.

Corporate governance has also improved a lot – firms are closely scrutinised, and although the blow-ups are eagerly covered by the media, these are now few and far between.

Investors seem jaded about Asia, and have switched between excess optimism and excess pessimism, without recognising the true value of the events unfolding there. In the past, Asia has been seen as a relatively volatile proxy for growth, driven by the export cycle.

This is no longer the case; it is now much more driven by internal events and domestic demand.

However, there are major changes taking place. Major Asian economies are more mature, and some of the easy growth has gone. Asian growth is slowing – certainly in China – and investors need to recognise this and respond.

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