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As we enter the Year of the Tiger, NAB’s Gerard Burg reminds us why Asia will continue to be the region of opportunities post-COVID.
At the start of the Lunar New Year, many Australians – whether of Chinese, Korean, Indonesian, Japanese, Malaysian, Singaporean, Thai or Vietnamese descent – mark the occasion with celebrations that represent some of the biggest in the world outside Asia. There is an innate sense of renewal and promise.
This year, any festivities must contend with an ongoing pandemic. Even so, the Year of the Tiger may offer up hope – particularly for those Australians looking to do business or invest in Asia.
True, the near-term could be challenging for some countries if the Omicron variant is as all-pervasive as elsewhere. But once the pandemic recedes, there’s good reason to believe the region will move onwards and upwards, benefitting well-placed businesses and investors alike.
A world beyond COVID
Certainly, Asia hasn’t been immune from the more challenging aspects of COVID – particularly those countries reliant on tourism, like Thailand and the Philippines, or confined to low-value-add exports, like Indonesia. And while the region has fared better than many other countries in managing the spread of COVID, the Omicron variant could turn out to be just as challenging as in Australia.
Nevertheless, many of Asia’s underlying fundamentals stand it in good stead in the medium to long term.
Take its population. Southeast Asia is young compared to the rest of the world. The median age in 2020 was just over 30 years, with only Africa lower.
This potentially gives Asia a much more adaptable workforce. Its people are more likely to be open to training, helping them move up the value chain away from very-low-value production into high-end-value goods and services that offer significant growth opportunities.
Trade barriers fall
Then there’s the long-term shift in the way supplies move around the world. The pandemic has exposed the fragility of many supply chains.
It’s not surprising, therefore, that companies and governments around the world are keen to diversify their supply chains, breaking their overwhelming reliance on China – often to the benefit of other Asian countries.
Vietnam, for instance, is already well placed, having spent the past several years stepping up to become a potentially major manufacturing centre. Indonesia could also use its massive, young population to its advantage here (as could many other countries in the region).
There’s also the promise of greater trade liberalisation through the Regional Comprehensive Economic Partnership – a trade agreement between 15 countries in the Asia Pacific region, including Australia – that came into effect on January 1.
Once fully in effect, it will represent the world’s largest free trade zone, covering some 2.2 billion people and encompassing trade in goods and services, investment, and economic and technical cooperation. It will also create new rules for e-commerce, intellectual property, government procurement, competition, and small and medium-sized enterprises.
While many of its benefits still aren’t quantifiable, the aim is to remove 90 per cent of tariffs in the block, freeing up trade flows considerably.
A demand for quality
All this will support a growing Asian middle class, which will in turn enjoy a strong growth in consumption – most noticeably among the lower-income countries that will move from a subsistence diet to a more varied, animal protein-rich diet.
This is a well-trodden path that we’ve seen globally as countries develop. Inevitably there will be greater demand for premium-quality foods as well as other high-end goods and services once these initial needs are met.
Clearly this represents a wealth of opportunities for Australian businesses – in primary produce but also in tourism, education and health. In fact, Australian health care providers are already moving in across several Asian countries.
Financial and business services are also likely to be in demand as the growth of companies results in more complex needs that require professional advice from experts such as accountants and lawyers.
That said, these fields will be competitive, as has always been the case in China. To succeed, Australian businesses need to present themselves as the premium option, and much of that comes down to ‘brand Australia’ and whether Asia’s growing middle class equates it with quality.
It’s something New Zealand does exceptionally well. Within Asia, it’s seen as very pure, very high-quality, very clean. Brand Australia isn’t quite there; currently, only certain products or services, not the entire nation, are synonymous with quality.
Investing in positive growth
At the same time, there are evident opportunities for Australian high net worth investors to buy into the growth story, typically through managed or exchange traded funds.
One area of particular interest could be the region’s booming renewables market off the back of its huge and growing energy needs. In fact, Asia’s energy consumption is expected to more than double by 2040, according to the International Renewable Energy Agency. Meanwhile, 99 of the world’s 100 most environmentally vulnerable cities are inside Asia. It’s little wonder then that renewables projects are picking up pace in Asia, presenting opportunities for both businesses and investors.
It’s just one more reason why Australians would be well served taking time out in the Year of the Tiger to have a closer look at Asia.
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