Emerging Asia has pulled out of the pandemic faster than many might have expected. Its outperformance relative to developed economies and emerging market peers is due to several factors. Its experience of dealing with past health crises – notably Sars – has allowed it to cope better with Covid-19.
What’s more, the bloc’s anti-crisis economic policies have been prudent and measured, in contrast to the West, where governments and central banks have been forced to take far more extreme measures.
Take China. Although it was at the epicentre of the pandemic, policymakers there have not had to resort to excessive fiscal or monetary largesse. The world’s second-largest economy has not experienced a build-up in borrowing on the scale of developed economies. For instance, it went into the crisis with public debt at less than 50% of GDP.
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The picture is similar in the rest of emerging Asia, comparing favourably with G5-economies where the average debt-to-GDP ratio is expected to exceed 150% next year. Asia has managed to support growth without sowing the seeds of potential future financial shocks.
The economies of the regional heavyweights – China and India – are as diversified as the US, with a balanced mix of heavy industry and services sectors. Emerging Asia should be the fastest-growing region in the world this year, with GDP expanding by up to 8.6%. All of this throws up a number of attractive structural and cyclical investment opportunities.
One of these is Chailease International Finance Corp. (Taipei: 5871), a Taiwan-listed specialised-finance company that lends to consumers and small businesses. A market leader on its home turf, it is now successfully applying its expertise to the underpenetrated mainland Chinese market. Unlike some industries where economies of scale can make or break a company, this is an arena where being a smaller operator is a competitive advantage. This is because many of its customers are just too small for its larger peers to bother with, meaning it can pick a high-quality client base.
Another of our favourites is Ming Yang Smart Energy Group (Shanghai: 601615), a wind-turbine manufacturer. We believe the company will benefit from China’s 2060 carbon-neutral goal and the broader environmental aims set out in the country’s most recent five-year plan. This is a fragmented yet dynamic market that we believe should consolidate over time. It bodes well that Ming Yang is based in one of China’s richest provinces, which has both the intention and the capacity to spend money on more wind-turbine installations. While highly sought-after sectors such as renewables have frothy valuations, this is a well-priced company.
Finally, Wiwynn (Taipei: 6669) remains a core holding for us. It focuses on research and development as well as the distribution of servers for cloud services and hyperscale data centres. Demand for Wiwynn’s services is expected to grow as the world extends its move online and as the likes of Amazon and Facebook continue to build their servers and data centres. This stock has lagged its peers, but we remain impressed with the company’s structural growth potential as demand ramps up.
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