In the first two parts of our three-part series, we exploredthe current climate of confrontation facing investors —and why invest in Asia in this age of confrontation? It’s easy to get sucked into the political noise and forget the fundamental facts of economic growth. When looking at Asia, it’s important to note that labor’s share of income across Asia as a whole is rising, and I believe earnings per share growth in Asia will likely be much closer to nominal GDP growth than it is has been in recent years. And is a more protectionist U.S.A. likely to reverse this?

For sure, Federal Reserve policy and the dollar do play a key role in global monetary policy. But it is becoming increasingly narrow-minded to think of the U.S. as the center of the world. One might make the argument that a more protectionist U.S. is already thinking about retreating from that role anyway. And maybe China will step into the fray. But just on plain data: the IMF reckons that the U.S. will have added about US$3 trillion to GDP in the five years to end 2016; China alone will have added US$3.9 trillion. Emerging and developing Asia together added US$4.7 trillion. Although the U.S. was the second-largest contributor to growth in terms of single countries, in third place was India and in fourth place South Korea. Other Asian countries proliferate in the leading growers—from Vietnam to Bangladesh. If the world is to split into trading blocs: the Americas, Europe, and Asia; it is likely that Asia will be the most vibrant of the three.

So we continue to focus on the domestic companies—even in the light of a rising share of capital income at the expense of labor’s share in Asia, wages will still be growing strongly. Demand will still be growing quickly: a weak U.S. dollar policy would mean that will likely be the case even more so in US$ terms for domestic businesses. As investors in Asian companies, this is an enticing prospect. Growth will likely be more favorably skewed towards the capitalist in Asia than it has been in the immediate past so the investor will share more of the growth of the region’s consumer. And it is still in the consumer-facing businesses that we find the most commercially structured industries, best-managed companies, and higher return-on-capital businesses.

Short-term decision-making in the long-term context

Despite this potential for growth and for improved returns to capital, the short-term worries still remain— tariffs, trade wars, the short-term impact of policies that might further strengthen the dollar. One can reasonably expect volatility to increase—statistical measures of volatility in the U.S. are extremely low as I write. Policy moves are uncertain. And while I am confident that the growth in Asia will assert itself on profits and investment returns over time, I cannot say with any confidence that the next few months will be a smooth ride. But until I see the fundamentals driving domestic growth in Asia change significantly, the new age of confrontation, of low or negative market correlations, of a U.S. determined to compete with Asian labor, that new age seems to offer plenty of long-term opportunities. For the long-term funda­mentals of growth persist in Asia, even as short-term markets moves might be clouded by sensationalism and hype.

By Robert Horrocks PhD, Chief Investment Officer, Matthews Asia. Click here for the first and second parts of this series.

Enterprise value to Earnings Before Interest and Tax (EV/EBIT) is a measurement to whether a share in a company is cheap or expensive, relative to competing firms or the wider market.

Price-to-Earnings Ratio (P/E Ratio) is a valuation ratio of a company’s current share price compared to its per-share earnings.

Return on Equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested, and is calculated as net income divided by shareholder’s equity.

Return on Invested Capital (ROIC) is a calculation used to assess a company’s efficiency at allocating the capital under its control to profitable investments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns.


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Investments involve risk. Past performance is no guarantee of future results. 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.