1. The great learning migration
While online learning has become a global phenomenon, China’s scale is unparalleled given its population size, level of internet penetration and technological advancement.
Although China’s online K-12 (Kindergarten through 12th Grade) After-School Tutoring (AST) market expanded at a compounded average growth rate (CAGR) of 85% from 2013 to 2018, the potential remains significant given still-low AST penetration rates in China (28%) versus +70% in Taiwan, Japan and Korea, and +85% in Hong Kong.
China online education market size by gross billing, 2013 – 2023E
There have been close to 100 education Initial Public Offerings (IPOs) globally between 2010 and2019, with the majority in the last three years from China and Hong Kong. The higher awareness brought about by Covid-19 may raise the penetration of online learning, especially in countries with large and geographically dispersed populations, potentially creating more investment opportunities in this sector in Asia.
2. Unlocking the (Asian) cloud
Covid-19 has accelerated the adoption of cloud computing as companies prioritise enterprise resiliency, operational redundancy and resource flexibility.
With a 10.8% market share1, China’s cloud infrastructure services market is the second largest in the world, behind the US. The Chinese market is dominated by local companies, with Alibaba, Tencent and Baidu as the three largest. The successful listing of Kingsoft Cloud in the US in May, in the middle of the pandemic, attests to the high growth potential investors see in China’s cloud market.
While China is expected to account for one-third of the cloud computing market in Asia Pacific in 2023, India and Japan are forecast to make up another one-third. The next biggest markets in the region are South Korea, Australia, Hong Kong and Singapore.
Becoming a global leader in the cloud market requires global presence, technology expertise, a recognised brand name, extremely deep pockets and a long-term focus. China’s ambitious cloud players appear to tick most of these boxes.
3. Data centre boom
The increasing adoption of cloud services, 5G and the IoT (Internet of Things) technologies has generated a growing demand for data centres, which provide the critical infrastructure that supports remote working, education and TV streaming.
Within Southeast Asia, Singapore has traditionally been the hub for public cloud players. The largest cloud players have also started deploying or announced plans to roll out new cloud regions in other parts of Southeast Asia, with Indonesia being one of the top spots – the country is expected to see a 10-fold increase in data consumption over the next five years driven by the surge in platforms and the rising digitisation trend across various verticals.
The multi-billion dollar Southeast Asian data centre market is expected to more than double in value over the next four years, potentially surpassing Europe in size by 2021.
Southeast Asia’s data centres
4. Robots at work
As companies move to dual supply chains – a practice of using two suppliers for a given product or component, etc – capital stock (including robots) should increase for the same amount of output. With Asia currently accounting for 86%2 of the global industrial robot installed base, re-shoring or a move ‘West’ implies that the US and Europe will start buying more robots as they expand their production bases. Higher wages and manufacturing costs will also lead western companies to lower costs via automation.
Robots will become easier to programme as machine learning tools make them smarter. A standardised generic interface will allow industrial robots to communicate with each other, potentially making robot leasing a viable solution for small and medium sized enterprises3.
Supply chain shifts to the west are taking place at a time when the working populations in these countries are shrinking, resulting in a greater reliance on automation. With Japan leading in several robot categories, local robot manufacturers appear well placed to ride this global trend.
5. Enablers of the 5G race and more
The fifth generation of mobile networks is expected to have a bigger impact on the global economy than any of the previous iterations. It is estimated that 5G technology will contribute more than $13 trillion to global output by 2035, representing 5% of global real output and generating 22.3 million jobs4.
Semiconductors are enablers and beneficiaries of 5G as well as the other key technology trends we have highlighted in this article.
The capability of semiconductor chips hinges on the size of their transistor – the computer circuit that performs calculations. State-of-the-art chips have the smallest transistors but the complexity and cost of producing such chips imply that only a few companies can operate at or near this level. Today, only two companies in the world can manufacture the leading-edge 5 nanometre (nm) chip – Taiwan Semiconductor Manufacturing (TSMC) and Samsung Electronics (SEC). US-based Intel aims to reach 5 nm by 20235. Taiwan and South Korea currently account for the lion’s share of state of the art (<16 nm) global chip fabrication capacity.
Global chip fab capacity by fab headquarters for state-of-the-art (<16 nm) chips
Why investors can’t ignore Asia’s edge
The shift to cloud, digitalisation and automation brings opportunities for enhanced productivity, as well as new products and services. Amid a changing competitive and regulatory backdrop, investors would be hard pressed to ignore Asia given its edge and growth potential in many of these applications.
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2. 2018 numbers. IFR, BofA Global Research estimates
3. International Federation of Robotics. Top Trends Robotics 2020
4. Omdia. Global sales activity across multiple industry sectors. March 2020