Asia is changing rapidly from a region known for export-driven growth to a diverse and successful region for investment, according to Guinness Asian Equity Funds' James Weir and Edmund Harriss.
Investors who think China will grow its output at 10% forever are going to be disappointed. But despite this, the quality of Asian growth is improving. Crucially, its sources are becoming more diverse than just exports to the developed world.
Asia still represents a huge opportunity, and investors shouldn’t ignore the scale of Asian growth.
Asian growth has been impressive over the last two decades. Figure 1 shows how some of its nations have outpaced the major economies of the developed world, and China has been the most impressive of all of the Asian economies.
China has outgrown its Asian peers, such as South Korea, and it is striking that East Asia has grown faster than West Asia, with China significantly outpacing the growth in India. Asia has also grown faster than other emerging markets which are noted to be development successes, such as Turkey, and faster than its proxies through natural resources such as Australia. Despite some volatility, China has consistently grown faster than the developed world. This is to be expected as a developing nation, but it is still surprising how quickly China has grown relative to the world’s other major economies.
Despite this impressive track record, investors need a reality check. China is now a huge economy and simply can’t keep growing at over 9% per annum in real terms. The Chinese political leadership recognises this, and the new target for the medium term is for between 7% and 8% real GDP growth on average. But many leading forecasters are still above 8%, and the market seems unwilling to hear the news that China is slowing down.
Alternatively, some investors believe that China’s growth will slow rapidly in the coming years, and that the current slowdown is much more than a cyclical adjustment. In our view, neither camp is correct.