Perspective

40 years in Asian equities: A webinar with Matthew Dobbs


“I’ve experienced four decades of crashes in Asian markets,” says Matthew Dobbs, looking back on his career. “But the subsequent recoveries have always resulted in markets reaching new highs.”

The returns from remaining invested in the region since the mid-1980s have been impressive – a 15 fold increase in USD terms. This is at the index level: many active managers have been able to do even better.

Asia has lived up to the potential that Matthew saw when he moved to Singapore in the 1980s.

There has been huge political progress, with Indonesia, the Philippines, Taiwan and South Korea all transitioning to democratic rule. Asia now accounts for 28% of global GDP – compared to just 8% in 1985.

There is also much more vitality in financial markets. A portfolio in 1985 would have been filled with companies founded in the nineteenth century, legacies of Asia’s colonial past.

Changing patterns of growth

Demographic shifts mean the growth outlook today is more nuanced. As in the West, China and other Asian countries must deal with ageing populations.

Even so, a few data points suggest there remain areas of much-needed investment, supporting the outlook for infrastructure and IT spending.   

  • India and China both need more railways: in the US, there are 2,000 people per kilometre of railway. In China and India, there are 10,000 and 20,000 people per kilometre respectively.
  • India and China need better air connections: there are 431 scheduled air routes between the US and Europe… and just 6 between India and China.
  • Asian software spending looks low: the US and UK spend around 1.0% of GDP each year on software: South Korea, India and China each spend less than 0.3%.

Many consumer-facing businesses will continue to do well – but consumer debt has risen rapidly in recent years and could be a headwind to the sector’s future growth. 

Matthew is wary of more traditional manufacturing businesses, especially where a company’s competitive position depends on low wages or lower production standards. This is unsustainable.

There is more opportunity in high-tech manufacturing, where many Asian companies are now global leaders – for instance, electric cars.

Cultural issues loom large

We shouldn’t underestimate cultural and political differences between the West and Asia. With close to 40% of revenue for the largest European companies coming from Asia, these differences could cause challenges for individual companies in the years ahead.

But geopolitical tensions aren’t necessarily bad for investors: the 1950s was the height of the Cold War – but also the start of a roaring bull market in global shares.   

Asian companies have had to deal with higher levels of state ownership than Western companies. However, government income as a percentage of GDP is much higher in the West – and Western governments can also find ways to make their influence felt.

The opinions contained herein are those of the author and do not necessarily represent the house view. This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Cazenove Capital does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. This does not exclude or restrict any duty or liability that Cazenove Capital has to its customers under the Financial Services and Markets Act 2000 (as amended from time to time) or any other regulatory system. Cazenove Capital is part of the Schroder Group and a trading name of Schroder & Co. Registered Office at 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. For your security, communications may be taped and monitored. 

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