I just finished a 2 week trip across South East Asia starting with Singapore and ending in Ho Chi Minh. It was my first time visiting a lot of the countries that included Malaysia, Indonesia, Vietnam, and Taiwan. A couple of weeks before, I had visited India with Oxford University to complete a core module part of my MBA program. The trip to India was my first lens into the Asia growth story and challenges ahead. This briefing shares some articles and excerpts about Asia ahead. Regarding my trip, the two places that really fascinated me were Bali and Kuala Lampur. I spent a few days at a spiritual retreat in Ubud which was an ideal place for self reflection as 2019 comes to a close. Kuala Lampur was interesting because everyone I spoke with knew very little about the city nor did they recommend I visit. However after spending only two nights I was pleasantly surprised to observe the infrastructure, real estate developments, and retail establishments in the bustling city. In addition, the cultural dynamic of Malaysia being a secular Muslim state and home to people from all over Asia and the West makes it a truly ethnically diverse city. The city also boasts a solid food scene given the cultural intermix; the world needs more Malay cuisine!
I also wanted to highlight Taipei: the city’s got a growing tech scene, most people speak English, Uber rides are super reasonable, the locals are friendly and calm, great bar scene, solid service, and its quite a clean and organized city. Lastly, aside from tipping hotel staff with Pound Sterling I brought with me, I travelled to 7 countries in Asia cashless (more on cashless economies below).
Asia briefing from different sources as at December 24, 2019:
Highlights:
- Asia celebrated 140 start-up unicorns as of 2019.
- Close to 2.4 billion new members of the middle class will enter the global economy from Asia-Pacific by 2030.
- Macau government’s wealth-sharing program distributed close to $1,250 USD to each permanent resident last year.
- 53 million workers in Asia will need to be re-skilled.
- China grew at the slowest rate in 27 years in 2019.
- India grew at the slowest pace in 6 years in 2019.
- China is going cashless.
- Malaysia and Hong Kong present an opportunity for contrarian investors?
In 2020 Asia is expected to have a bigger GDP than the rest of the world combined. The byproduct of that will be the staggering 2.4 billion new members of the middle class that will enter the global economy from the region by 2030. This is not to underestimate the slew of social and economic problems that confront the region. Given the diversity of the region, consumption patterns will differ and get impacted by local demographics. China has an aging population but rising wages and urban migration is expected to enhance consumption. India’s growing middle class is expected to boost consumption and economic growth. Indonesia, Malaysia, and Philippines are expected to substantially grow their labor force and experience a rise in disposable income per capita. Homegrown businesses are expected to outgrow incumbents in many parts of Asia – Wardah, an Indonesian halal-compliant cosmetics business captured 30% market share in the country. Asian multinationals are no stranger to the growth trajectory: Huawei (tech), DBS (banking), Indofood (F&B), and Unicharm (personal care), to name a few. Asia celebrated 140 unicorns as of 2019 and China leads in AI. Among the challenges faced by the region are job displacement from the onset of technology – 53 million workers will have to be reskilled. Ride-hailing businesses are employing qualified graduates to service the gig economy. ESG trend in Asia is pervasive with many large investors moving toward renewable energy and socially responsible business models (World Economic Forum by Yendamuri, and Ingilizian).
China’s other ‘one country, two systems’ is the tiny former Portuguese colony, Macau. Macau embraces the same administrative model as Hong Kong and recently marked its 20th anniversary under Chinese domain. The difference however has been the lack of unrest in Macau compared to the recent 6-month long protests in Hong Kong. Chinese President Xi vehemently affirmed his stance that foreign interference in the internal matters of China were unwelcome. Macau has its own local currency and laws and gambling make up a substantial portion of its economy. The regions’s leader recently told the BBC that “we do not have any kind of open arguments with China about one country two systems. We understand the boundaries quite well…and the legacy of communication with the Chinese government was one reason why two systems is more effective in Macau than in Hong Kong.” Macau is home to just over 600,000 residents and maintains the third highest GDP per capita behind Luxembourg and Switzerland. Last year the government shared close to $1,250 with each permanent resident as part of a wealth-sharing program. Opening Macau to major American gaming industries by China has been instrumental for the State’s growth. Half of Macau’s residents came as immigrants from China and for China, it is “a poster boy for the one country, two systems model”. Dissent has been nonexistent in Macau because unlike its cousin Hong Kong, Macau does not demand greater autonomy or freedom of rights from China (BBC by Sophie Williams).
Singapore students top the global leader board. The wealthy island-city state promotes a culture that values education and holds teachers in high regard. However, high achievement exposes challenges of its own. The country saw more than a 50% rise in the number of young adults seeking mental help in 2018. “I think it’s just the kind of environment that you’re in, it’s too much pressure…I kind of developed a fear of failure” says one student (Al Jazeera).
Malaysia and Hong Kong offer contrarian investors an opportunity in 2020 according to Ronald W. Chan. Malaysian stock market was the worst performer in Asia Pacific in 2019 due to weak economic growth, rising oil prices, US-China trade war that negatively impacted demand for Malaysian products, and weakening sentiment as a result of austerity measures. However, earnings for companies on the benchmark gauge are expected to grow 11% in 2020. Hong Kong’s self-inflicted trough also presents an opportunity as the economy heads for its first annual contraction since the financial crisis of 2009. However, there is the risk of protests intensifying with further unrest in 2020 cautioning contrarian investors. Ronald W. Chan of Chartwell Capital believes recovery for Hong Kong could be fast once political clarity starts to emerge (Bloomberg Opinion by Ronald W. Chan)
China booked the slowest economic growth in 27 years according to Reuters after reporting a 6% growth rate in the third quarter of 2019. The Chief Economist of ANZ Bank, Richard Yetsenga, warned that China is slowing structurally and that its Asian neighbors must adjust to that reality. Yetsenga believes that the 12% growth the country experienced 10 years ago can never be achieved again. Financial systems in Asian countries such as Philippines and Indonesia haven’t been able to deliver domestic growth which will be a key issue for Asia in 2020 according to Yetsenga (CNBC by Stella Soon).
Two dozen adults in a childless village in Japan compensate for the absence of children by handmade dolls. Nagaro is a remote mountain village that welcomed its last newborn 18 years ago. The town closed its elementary school in 2012 after its last two students completed sixth grade however it was brought back to life by display of 40 handmade dolls to recreate the sports day known as “undokai”. Japan’s population is aging and shrinking which is more prevalent in rural towns where there aren’t many employment opportunities. The 350 dolls in the town outnumber its residents 10 to 1 (New York Times by Motoko Rich).
World’s fourth largest economy is going cashless. In China, 600 million people use mobile payments – that’s nearly double the US population. Southeast Asia’s 11 countries make up the world’s fourth largest economy and the region is experiencing a growing number of internet users, however regulation varies across the different countries. The vibrant market for tourism and substantial migrant population in Southeast Asia demands cross-border payment solutions to repatriate funds back to home countries. Grab, an Uber-owned ride hailing app, is the region’s largest unicorn with a $14 billion valuation and is expected to launch a e-wallet function for China. WeChat Pay and Alipay are other payment platforms that are active in the region. The e-wallet market is burgeoning in the region with Thailand, Malaysia, Singapore, and Indonesia leading the pack, and is expected to grow from 9 to over 50 providers by 2020 (Fortune by Fortune Editor).
Indian Prime Minister, Narendra Modi announced that his federal government will spend $1.4 trillion USD to beef up the country’s infrastructure. The country grew at its slowest pace in 6 years in the 3rdquarter of 2019. India is currently Asia’s third largest economy behind China and Japan and the country’s Prime Minister believes the country will emerge even stronger from the recent slowdown (Reuters by Verma and Bhardwaj).
Taiwan is working toward creating a thriving start-up ecosystem. In recent years the country launched two ecosystem builders: “Taiwan Start-up Arena” and the government-funded “Taiwan Tech Arena” which connect Taiwan to international ecosystems and provide co-working space, respectively. BE Accelerator operating out of Taiwan Tech Arena has raised over $50 million and accelerated 29 startups. Taiwan commands importance in AI as it relates to healthcare since the country maintains 25 years of digitized patient data. AI is one of the biggest trends in healthcare but needs a lot of data to function properly and that is where Taiwan offers its treasure trove of patient data that can be used by healthcare start-ups to test their solutions (EET Asia by Matthew Burgess).
References: World Economic Forum, BBC, Aljazeera, Bloomberg, CNBC, New York Times, Fortune, Reuters, and EET Asia. Please note that this briefing contains paraphrased summaries and attributes the original content to the news sources. We encourage readers to visit the links to access the full article in its original form for a thorough and complete view. You may need to subscribe to the news agency and source for access.