Asia will continue to grow, but that expansion won’t come from traditional sectors.
“In the last three-to-five years, [growth was led by] fixed-asset investment, urbanization, building and exports,” says Raymond Chan of Hamon Investment Group. His company manages the Renaissance Asian Fund and Renaissance China Plus Fund.
“But going forward, sectors within new areas of growth, such as the Internet and e-commerce, will [outpace] nominal and real GDP growth.”
China’s e-commerce industry, for instance, currently accounts for 7% of its total retail sales — worth about $283 billion at the end of 2012. Chan predicts the sector will grow 30% in the next five years and will expand faster than traditional retail sales.
Also at the end of last year, healthcare spending as a percentage of China’s GDP was approximately 4.5%, with the government targeting 7.5% by 2020. So this industry may grow 20% or more per annum over the next few years.
Overall, the country’s leadership change and new growth model will help improve its productivity.
There are also opportunities in southeast Asia, especially in ASEAN countries. For example, “In the Philippines, there’s a very strong, long-term secular growth [forecasted] for the next two-to-three years,” Chan says.
This will be driven by stable political leadership; the current president Benigno Aquino is halfway through his current six-year term, with an approval rating of more than 80%.
Chan adds, “[This] provides him with a lot of background and ammunition to carry out things to revive the economic growth of the country. Also, the Philippines was recently upgraded by [ratings agency] Fitch to investment grade” — the first time this has happened. S&P also upgraded the country earlier this month.
He adds this will push increased capital flows into the country, which isn’t driven by foreign direct investment.
“Overseas workers’ remittances, as well as [the rise] of new processing and outsourcing industries” are having more of an impact, says Chan. “The country has [banked] a current account surplus because of these two new industries.”
He also finds domestic conglomerates will be confident about investing in the Philippines over the next two-to-three years.
Chan adds, “We see economic growth continuing [at] 5% or 6% and above, and we don’t see any risk of inflation being driven up. We see expect there will be cyclical, sectoral, and structural growth in the Philippines in the next few years.”