Investors have been worried about the effect of a Chinese slowdown on Asian emerging markets, but the long-term growth story is still intact, according to specialist investment manager Matthews Asia.
Consumption is one of the key areas of growth. Illustrating the divergence of Asian economies and their path to prosperity, here’s an interesting chart from Matthews which shows the standard of living of various Asian countries, expressed by applying Geary-Khamis dollars — the concept of international dollars based on purchasing power parity — to today’s Japan.
For example, the living standards of North Korea and Mongolia are at around that of Japan in the 1890s — when Japan and China fought in the Sino-Japanese war and Wilhelm Rontgen discovered x-rays — while China’s is equivalent of an early 1970s Japan and Malaysia and Thailand are a step ahead at the mid-1970s.
This means a lot of countries have further to go until they reach the present economic status enjoyed by Japan, South Korea and Taiwan, giving investors huge opportunities.
“There’s a vast opportunity set for you to participate in the consumer story. Development of the services sector is a driving factor going forward,” says Lydia So, U.S.-based portfolio manager of Matthews.
She says that one chain convenience store in the Philippines — which stands at a 1950s Japan — serves 80,000 people, while in Japan there’s one for every 2,200 people — because there are many mom-and-pop stores in the Philippines, like in Japan back in those days.
So focuses on small cap stocks and her average holding period is three years. “(With small caps) you can choose a lot of companies with more focused business models… We don’t invest in a speculative manner,” she said.
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