While Europe, USA and Australia are considered mature economies, most ASEAN countries are described as being on the "cusp of development", seeing rising incomes, better standards of living and positive GDP growth.
Getting a slice of the action
The rise of the middle class and urbanisation in Asia has also been well-documented. For example, Vietnam, China and Thailand continue to grow their economies through flourishing trade in goods and services and growth in infrastructure.
The improvement in transportation and logistics has enabled many of the poor to slowly shift from rural, agrarian lifestyles to urban, metropolitan lifestyles, improving both incomes and standards of living. For example, China's middle class is expanding at an unprecedented pace, and McKinsey & Co estimates that by 2020, more than 75% of China's urban consumers (400 million people) will fall into the "middle class" category1.
With higher incomes, consumers have also become more discerning with their expendable income, purchasing luxury goods. This trend is likely to grow stronger over time.
As an investor, what is the best way to tap on the trend of growing consumption and urbanisation in the region? Investors have the options of investing through
- Direct equity investments
- Investments in rapidly growing private businesses
- Investment in unit trusts
We discuss the pros and cons of each and dissect the most cost-effective and efficient method of investing.
Direct equity investments
Purchasing stocks of ASEAN’s best performing companies may seem like the most straightforward way to ride on ASEAN growth trends.
However, one would need to analyse businesses (profitability, future growth, market outlook, etc) and avoid sector and geographical concentration. This is quite a demanding task. For example, an investment in e-commerce and gaming giant, Tencent will provide you exposure to the gaming industry only in Hong Kong and China. Therefore, you would need to build a portfolio with a range of equity investments to help you enjoy the growth in various industries and geographies.
While this is possible, it is very time-consuming and would require the investor to have deep skill sets spanning a wide variety of business disciplines and countries, not to mention having an intimate understanding of accounting.
Hence, what seemed like a straightforward endeavour at the start may turn out to be a tedious and time-consuming process, having to consider growth prospects, and valuation and market sentiments/expectations. Not to mention, you may also have to purchase stocks in several markets in the Asia Pacific region, potentially work with multiple brokers and currencies and, finally consider regional trading regulations.
Investments in private businesses
At first glance, this seems an obvious choice – to invest in strong businesses that are rapidly scaling up amid a backdrop of urbanisation and increasing disposable incomes. There are numerous start-ups in ASEAN, such as Grab, Traveloka and Carousell , which are disrupting traditional methods of doing business and some of these present very promising prospects for the long-term. This means that investors who invest early could potentially reap rich rewards in the years to come.
However, a major stumbling block to these types of deals (known as "private equity deals") is that they are difficult to access, riskier and usually reserved for accredited investors. At a minimum, accredited investors need to have assets worth at least SGD 2 million or have an income in the preceding 12 months of not less than SGD 300,000/year.
Investing in unit trusts may turn out to be the most compelling choice. Firstly, it eliminates the need for on-the-ground investing expertise and knowledge to invest in specific securities, as this task is "outsourced" to an experienced fund manager with a team of analysts who are sector and/or country experts.
Secondly, the unit trust is able to own a widely diversified basket of securities, curated and compiled through a careful process of selection and consideration. Moreover, these securities would also be monitored and rebalanced by fund managers periodically when economic situations change or when trends shift.
Thirdly, unit trusts have very low minimum investment amounts, starting from as little as $100. They are also suitable for individuals who may not have a lot of savings in the first place.
A fourth benefit is that buying and selling unit trusts is straightforward. You can redeem your fund and get your money back usually within 2 business days as these funds are very liquid. So, if you prefer to switch your exposure from one country to another, it is just a click away.
There are a wide variety of choices for the discerning investors, including growth funds, bond funds and sector funds, hence investors are spoilt for choice and must "shop" before he settles on several funds.
Aviva’s Navigator platform provides a diverse array of funds spanning across different asset classes, geographical sectors and market sectors, making your investment journey easier and hassle-free.