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Don’t let global headwinds blind you to the huge Asia opportunity

Despite tough global backdrop, co. across much of emerging Asia are confident about their future.

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Last Updated: Jan 25, 2020, 01.15 PM IST
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By Matthew Lobner

It could be tempting to assume that Asia’s emerging economies are going through a rough patch. Global trade tensions are stirring wider uncertainty, while geopolitical tensions are simmering in parts of the region.

In times like this, though, it’s important to do a reality check and take stock of the underlying drivers of the region’s long-term economic prospects. And those remain broadly encouraging, delivering expected growth rates of more than 6 per cent this year in Bangladesh, the Philippines and Vietnam.

Despite the tough global backdrop, companies across much of emerging Asia are confident about their future. A recent HSBC survey of more than 9,000 businesses in 35 markets found that well over 90 per cent of companies in Bangladesh, India, Indonesia and Vietnam expect their sales to grow on the coming year, and many from those markets expect sales growth of 15 per cent or more. This optimism is markedly above the global average.

Step back from the rollercoaster of the daily news flow, and several broader trends come into view – trends that have a long way to run, that are relatively immune to the global trade turmoil, and that will continue to support growth for the foreseeable future.

The first is demographics. Emerging Asia is in a demographic sweet spot, home to mostly young populations. In India and Bangladesh, nearly 4 in 10 people are aged 19 or younger. In Southeast Asia, under-20-year-olds make up just over one-third of the population. These are often mobile and tech-savvy people, open to trying, buying and making new things. And as the emergence of numerous home-grown e-commerce, ride hailing and payments startups across the region show, they are also increasingly capable of delivering innovations as well as higher-end manufacturing and services.

Hand-in-hand with this comes urbanisation. As the region’s populations and economies grow, millions of people are swapping farms and fishing boats for towns and cities. Once there, they are generally within better reach of education, banking and healthcare services, and of higher-paying jobs. In Southeast Asia alone, more than 100 million people will have moved to cities between 2015 and 2030. In Southern Asia, that number tops 260 million, according to United Nations projections.

All this is fuelling a big demand for infrastructure. Transport, energy and other infrastructure in Asia’s developing nations is often inefficient or strained. But big investments have been -- and are continuing to be – made in urban, national and international projects.

The transformation of regional air traffic illustrates the pace of change well: airports and airlines that did not exist 20 years ago now connect locations that were once barely on the aviation map.

All this helps explain why developing Asian nations, as a whole, have gone from being mainly hubs for manufacturing cars, electronics, textiles and other goods for export to now also being sizeable markets for those very goods. A villager in Sri Lanka buying a refrigerator, a shop owner in rural Thailand purchasing the first smartphone, a truck driver in Indonesia arranging an insurance policy – all are examples of emerging Asian population’s rising prosperity.

This also helps explain why economies like Vietnam have attracted significant investments, as companies have sought to diversify their manufacturing and sourcing profiles amid the global trade uncertainty.

To be sure, navigating the constantly shifting sands of today’s global, regional and domestic issues can be challenging.

Investors and businesses need to take careful stock of the specific circumstances in each country. Demographic trends, levels of education and affluence, relative labour costs – all these vary widely across the region.

Opportunities (and challenges) in one country may not be quite as pronounced in another. Swings in global investor sentiment and trade tensions have the capacity to affect individual economies to different degrees. Climate change also presents a challenge, particularly in South and Southeast Asian countries, where cities like Bangkok, Mumbai and Jakarta are vulnerable to sea level rises and increasingly frequent fierce storms.

Still, none of this should overshadow the fundamental fact that Asia’s emerging economies are more affluent, innovative, developed, and less susceptible to external headwinds than just a decade or two ago.

It may be a counter-intuitive message in these times of global uncertainty, but it’s worth remembering that they remain, collectively, a powerful engine of growth with expansion rates that easily top those in Europe or the US. Investors and businesses who miss this bigger picture do so at their own peril.

(Matthew Lobner is Head of International and Head of Strategy & Planning, Asia-Pacific, HSBC. Views are his own.)
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