Emerging Asia: The Next Frontier
Matthews Asia | September 2015
For institutional use only. Do not give, show or quote to any other person. Not to be used with retail investors. Do not duplicate or reproduce ©2015 Matthews International Capital Management, LLC PT472
The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC (Matthews Asia) does not accept any liability for losses either direct or consequential caused by the use of this information.
The information contained in this presentation is for informational purposes only and does not, in any way, constitute investment advice or an offer to sell or a solicitation of an offer to buy any security or product mentioned herein. No representation is given that shares, products or services mentioned herein are suitable for any investor.
Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. Fixed income investments are subject to additional risks, including, but not limited to, interest rate, credit and inflation risks. In addition, single-country and sector strategies may be subject to a higher degree of market risk than diversified strategies because of concentration in a specific industry, sector or geographic location. Investing in small companies is more risky and more volatile than investing in large companies.
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There are more people living inside this circle than outside of it
Source: Washington Post, May 7, 2013
Asia’s Global Relevance
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Things to Consider Not all emerging markets are created equal—Emerging Asia is growing faster
*Note: G7 countries includes Canada, France, Germany, Italy, Japan, U.K. and U.S. Source: World Bank, 2014
• Asia is currently ~ 69% • Up from 55% 1/29/2010
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Emerging Asia Global Emerging Emerging Europe Emerging Latin America G7*
EMERGING GDP GROWTH %
10 Year Average 5 Year Forecast
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Asian Economies Can be on a Path Towards Greater Prosperity
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0.0 0.2 0.4 0.6 0.8 1.0 1.2
Europe
U.S. and Canada
Latin America
Asia
Middle East/Africa
TAIWAN SOUTH KOREA
HONG KONG
SINGAPORE
CHINA
INDIA
MALAYSIA THAILAND
JAPAN
U.S.
Asia is the only region that has achieved “Economic Take Off”
GDP per capita relative to the U.S. (1980)
GDP per capita relative to the U.S. (2010)
Source: Angus Maddison, MICM
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Asia’s Consumption Still Has a Long Way To Go… Asia per capita GDP in historical context to the U.S.
Sources: Maddison Historic GDP, IMF, MICM calculations; Data as of 2012
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1 1600 1806 1818 1830 1842 1854 1866 1878 1890 1902 1914 1926 1938 1950 1962 1974 1986 1998 2010
U.S. Asia Countries
Hong Kong
Singapore
Taiwan
Laos Bangladesh
South Korea
Malaysia Thailand
China
Sri Lanka
Indonesia
Burma Pakistan, Cambodia
Mongolia, North Korea, Nepal
India, Vietnam, Philippines
GDP per capita (US$)
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Pillars of Sustainable Growth
Manufacturing capacity migration to Frontier Asia
Remittances
Foreign Direct Investment (FDI)
Urbanization/Demographics
Rising Wealth
Technology/ Pace of Change
India
Vietnam Myanmar
Malaysia
Cambodia
Bangladesh
Thailand
Indonesia
CHINA
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EM Consumption is an Asia Story Global middle class consumption (2000 – 2050)*
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
Sub-Saharan Africa
Asia Pacific
Central and South America
North America
Europe
*Data represented beyond November 2011 are estimates only. Notes: Global middle class consumption is defined here as household consumption between USD 10 and USD 100 Purchasing Power Parity (PPP)/day. Projections hold most recent distribution constant (from PovcalNet database) and assume consumption equals income growth (projected by a Cobb-Douglas production function, a model of Real Exchange Rate (RER) convergence based on the Balassa-Samuelson model, and UN population projections). Source: Organisation for Economic Co-operation and Development (OECD) 2011, Perspectives on Global Development 2012: Social Cohesion in a Shifting World; Data as of November 2011
Middle East and Northern Africa
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0
500
1,000
1,500
2,000
2,500
3,000
Evolution on Consumption
Source: BEA Credit Suisse Research, MICM estimates, 2013
Rising per Capita Income
Unit volume consumed per capita
Recreation
Health Care
Food and Beverage
Real household consumption vs. GDP per capita
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Speed of Change in Frontier Markets
CAMBODIA 2015 CAMBODIA 2011
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How You Invest in Growth Matters
Argentina
Nigeria
MSCI EM INDEX
MSCI Frontier Index is over 50% Kuwait, Argentina and Nigeria Over 45% of the countries within the MSCI Frontier Index are forecasted to grow at less than 3% per annum The MSCI Frontier Index is over 50% Financials and only 8.1% Consumer Staples and Health Care The MSCI EM Index is now 69% Asia calling for increased specialization
Asia ex Japan Latin AmericaMiddle East and Africa Europe
Note: The MSCI Frontier Index is represented by the iShare MSCI Frontier ETF (FM), and the MSCI EM Index is represented by the iShare MSCI EM Equity Index (EEM). All country and sector weights are shown as of 9/9/15.
Source: IMF World Economic Outlook 2015, Bloomberg, BlackRock Inc., MSCI, CLSA
MSCI FRONTIER INDEX Kuwait 26% Argentina 13% Nigeria 13% Pakistan 11% Kenya 6% Oman 5% Morocco 5% Romania 5% Bangladesh 3% Vietnam 3% Kazakhstan 3% Sri Lanka 2% Mauritius 1% Jordan 1% Other 1%
Kuwait
Argentina
Nigeria 0%10%20%30%40%50%60%70%80%90%
100%
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14
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Matthews Asia Resources Emerging Asia: The Next Frontier
Frontier Asia: Their Path to Prosperity Matthews Asia believes that Asia's frontier markets are poised to follow on the well-worn path to prosperity that many of their neighbors in the region have taken. In our special Frontier issue of our AsiaNow Report we explore why we are optimistic about frontier economies. Visit matthewsasia.com to access AsiaNow and other special reports for insights and analysis into recent market events, broad economic developments and topics relevant to Asia’s markets.
Opportunities in Frontier Asia
Matthews Emerging Asia Fund Managers Taizo Ishida and Robert Harvey, CFA, discuss the opportunities they see for investors in the growing frontier markets of Asia.
Reflections on Frontier Markets
Matthews Emerging Asia Fund Manager Robert Harvey, CFA, reflects on the growth he's seen in frontier markets such as Vietnam and Myanmar, and what that means for investment opportunities in these developing economies.