Bank of Singapore’s (BOS) chief investment strategist (CIS), Eli Lee, sees that the outlook for Asia remains fairly bright, especially if investors understand the “business of choosing your spots.”
“I think that the bifurcation that we're seeing in the world is really reflected in the microcosm of Asia today, in the sense that there is a real search for safe havens within Asia,” says Lee.
Speaking on a panel at the Milken Institute's Asia Summit 2024 on Sept 19, he says that while Asia’s outlook has historically been tied to China, a steady decoupling has been taking place, as seen in the rewiring of supply chains and the displacement of investments from the global power to other countries in the region.
Announced in 2015, the ‘Made in China 2025’ national initiative signalled an intention of moving the country past its moniker as ‘the world’s factory’ to one of internal priority, with the policy including targets for Chinese firms to displace foreign counterparts in domestic and international markets across 10 key technology areas.
These include the key fields of information technology, artificial intelligence (AI), green or electric vehicles and energy.
The post-pandemic supply chains of the world have also been altered, with China’s locking of its borders exposing vulnerability across nations and giving rise to economic nationalism.
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While gravitating away from China looks to be a sure trend, Lee points out that the amount of investment and time required in terms of allocation flow will be immense. “The manufacturing output of China is 10 times that of India. It is 50 times that of Vietnam.”
He adds that owing to the young average population ages of these nations, however, support in the coming years seems likely plausible.
“In Indonesia, India, they are still reaping an increasing amount of demographic dividend. I think the average age in these two countries is about 33 years old, which is immensely young. China is about 38 and rising. Furthermore, with elections in India and Indonesia recently, we are seeing some degree of political continuity as well,” says Lee.
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The CIS also notes that there will be tremendous opportunity for private wealth managers and investment managers in the allocation towards alternative investments and private wealth, which he anticipates to increase significantly over the next decade.
He explains: “I think there’s this recognition that transplanting institutional alternative portfolios into private wealth is not going to get you very far, because there’s a difference in risk preferences, liquidity preferences, time horizons, intergenerational transfers and so on.”
With this, Lee expects the space to evolve with more liquid developments.
“I actually think before long we are gonna see the first private asset electronically-traded fund (ETF) listed so I think this is an area and opportunity to watch really closely.”
Although Lee maintains a largely favourable view of the current times and the years after, he cautions the importance of understanding investing themes and their action-driven consequences; such as in the popularity of the AI and the semiconductor industry.
“From these, practically seven stocks are in the S&P500, and when you get a concentration of value this high in the general index, it leads to significant risk down the road. And the fact is that if the promise of AI is real as we believe, this is going to be a broad-based technology across finance, healthcare and predictive analytics,” says Lee.
The CIS concludes: “So I think really we've been working with our clients to really understand the impact and the areas that would benefit from these second order effects.”
