Asia currently appears to be at the sweet spot of the recovery cycle, with buoyant export growth and domestic demand making a comeback after being depressed for the past few years.
The weak dollar and low interest rates have provided a positive backdrop for economic growth over the last 12-18 months.
Although export growth may look to peak soon in line with global economic upturn, recovery in domestic demand could more than offset the external sector slowdown. Concrete signs of a turnaround are already visible, with loan growth starting to return, property prices recovering and retail sales picking up.
This domestic recovery story is particularly important as it could potentially lead Asian markets to de-couple from the US market. Historically, periods of massive outperformance relative to the rest of the world have in the past often been driven by strong bouts of domestic recovery.
From a longer term perspective, several secular trends may support Asia’s stronger growth profile. First, global outsourcing should continue to drive market share gains for Asian exports, since the lack of pricing power for global companies has turned costs into an increasingly important issue.
As a result of their cost competitiveness and growing pool of skilled labour, many Asian companies are moving up the value-added ladder rapidly and taking market share globally. The technology sector is a particular beneficiary of this trend – Asian companies are increasingly leading the way in semi-conductor, laptop and motherboard manufacturing. Taiwan, for example, accounts for more than 60 per cent of global laptop shipments, while Indian IT services continue to see tremendous growth.
In addition, consumption should become an increasingly important theme over the next decade due to a favourable demographic mix. Significant expected growth in the 30-50 age group, which is the high-earning, high-spending band, over the next two decades should have a positive impact on consumption.
Siew-Hua Thio, vice president, co-head of Goldman Sachs Asset Management’s Asian Equity Group, Singapore
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Asia Pacific: The sweet spot of the recovery cycle
October 2004
China and India are forecast to develop into the world’s largest and third largest economies by 2040, according to Goldman Sachs economists. Institutional investors are investing in the sector for the short term and longer term because of these compelling growth prospects. The region offers a growing pool of world-class Asian companies, many of which are seeing global market share gains. Related articles: |
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