What keeps you up at night?

Asia’s story offers plenty of reasons for optimism, but there are also concerns and outright fears for its future.
What keeps you up at night?

Investors don’t like to spend too much time thinking about Asia’s future beyond the numbers dancing on the Bloomberg screen. Gauging the risks of war, a pandemic or environmental degradation rarely factor into most portfolio managers’ analysis, because they can’t be modelled.

But good investors do take time to think about broader issues and try to understand the world they are in. Those free cashflow numbers don’t exist in a vacuum.

I’ve written a few pieces about some of the risks to the Asian growth story, from inadequate welfare and pension provisions for an aging population, to the risk of many countries falling into a middle-income trap.

Asia-focused academics from Columbia University and Australian National University have provided their takes on both Asia’s most notable accomplishments, as well as the biggest threats to it, or from it.

Both sets of views are available in a pair of short videos complied by a professor at ANU, Nicholas Farrelly, who is co-founder of an excellent blog on Southeast Asian affairs.

The first video asks the professors about the most promising developments in the region. Many of them cite not just Asia’s incredible economic rise and the mass eradication of poverty, but the way in which this has led to much greater interconnectedness, both within the region and to the rest of the world.

Another improvement cited by multiple academics is democratisation and the positive impact that has had on the lives and opportunities for many people. A third notable improvement is in education and a greater open-mindedness among many people throughout the region, which is generating new opportunities and fuelling optimism about Asia’s – and the world’s – future.

The second video asks the same professors about ‘what keeps them up at night’? There is less consensus here. For investors trying to understand the world, some of these concerns may be irrelevant, at least as far as your spreadsheet is concerned, but others could have an impact on business opportunities in the coming decade.

Among the fears is the region’s growing inequality, not just in terms of income disparity, but also of how natural resources are distributed across the world’s most populous continent.

Although many academics praised the growing interconnectedness among Asian societies, this apparently hasn’t gone far enough, as several professors voice fears that the region’s governments are not able to cooperate in the face of transnational disasters, such as a pandemic.

But the biggest fear is mismanagement of China’s rise and the nationalism this stokes, not just in China but throughout the region. The flip side to young, educated, optimistic populations is a new generation that has never known war – which in itself is a good thing, but it also means passions are easily stirred, particularly in China, where the Communist Party’s legitimacy is so closely linked to nationalism.

Such concerns are not about the Chinese per se, but also about whether the West and multilateral institutions are able to accommodate the rise of China, and of Asia more generally.

The interconnectedness that academics welcome includes a Chinese acceptance of multilateral forums, such as the World Trade Organisation. Both Asian governments and Western peers need to ensure such dialogues deepen, in order to keep Asia’s rise on track. That’s going to become harder as the region deals with the instability that growing inequality is likely to engender.

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