What Should You Invest In For The Long Term?
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Whenever it comes to investing, the most common question that clients would ask is the question: “If I want to start investing, what should I invest in?”
In this video, I will share with you my investment thesis and why you should be investing in Asia if you are thinking of investing for the long term.
Without further ado, let’s get started
Before we delve into the thesis itself, let us first define THE part of Asia that we focus our investments in.
For our investments and analysis, we are only interested in Eastern, Southern and South-East Asia as they exhibit similar characteristics and are structurally positioned for growth in the next 10-20 years.
With that out of the way, let us go through the thesis itself and examine the factors of growth that will provide the returns that we are looking for as investors.
1. Population Size & Growth
When it comes to population size and growth, it is largely concentrated in Asia and Africa.
Based on the United Nation’s projections, we can expect Asia to contribute to the bulk of the population growth for the next 20-30 years before Africa overtakes us.
So why is this important
Having a huge and growing population will contribute to a higher demand for consumption and supply for production.
This inevitably drives up the business activity within the region itself which directly contributes to higher business profitability and hence higher investment returns since we are investing in the businesses themselves.
Now some of you might ask: “This isn’t something new, Asia had always accounted for a large proportion of the global population in the past. What changed?”
The key difference between the past and the future lies in the population’s ability to spend and consume.
Unfortunately, we were too poor to spend and consume in the past and as a result, while we were the global manufacturer of the world, the value that we had created are not consumed nor captured within Asia and is often exported and captured elsewhere.
Think about it, in the past, something that was manufactured for $2 in Asia is sold at $10 in the US. As a result, the $8 profits were captured in the US instead of in Asia and that was the key missing factor that impeded the growth within the Asia region.
Moving forward, things are changing as Asia is experiencing tremendous growth in the middle-income class and because of that, you can expect the population in Asia to have higher spending power and hence the consumption within Asia is expected to increase.
In fact, Asia is set to account for 50% of the global consumption growth in the next decade and what this means is that the value that was created in Asia will start to be consumed and captured within Asia itself instead of being exported.
Apart from just spending and consuming, for sustainable growth to occur, it is also important that we look at the production capabilities.
Ideally, an economy should produce more than it consumes as the surplus can then be used for more productive activities that will generate additional outputs and profits down the road.
Having said that, if we were to look at the global projection of the percentage of the population aged 25-64 years old, which by the way, is the age where we would produce more than we consume, it is evident that the proportion of working population in areas such as Africa and Asia is set to grow.
Compare that to the figures that we can expect from the developed regions like Europe and North America, we can infer that there will be way more working adults in Asia who can produce and contribute to the economy as compared to the developed regions.
Putting everything together, we can expect the overall population size of Asia to continue to grow alongside an increase in the purchasing power led by the growing middle class while the percentage of working-class adults remains steady.
What this means is that there will be an increase in the demand for consumption and supply for production both of which will help increase the business activity in Asia and generate higher value and profits within the region.
By investing in Asia, we are trying to capture a share of this growth and profits that is set to increase steadily in the next 15 to 20 years.
2. Improving Productivity
The next factor that will propel the growth of Asia is the increase in productivity mainly driven by the improvements in the literacy rate, infrastructures and higher levels of technological adoption and innovation.
On the topic of literacy rate, if you can’t even read and write, it is very difficult for you to upskill and improve yourself to be more productive and take on a higher income-producing job.
While the literacy rate in South Asia isn’t at the ideal rate yet, it is evident that the literacy rate as a whole had improved significantly over the years and is set to increase further moving forward.
That said, we can expect the productivity within Asia to improve as more and more people can read and write thereby allowing them to improve their situation.
Apart from the literacy rate, Asia’s infrastructure will also improve as time goes by.
Looking back, Asia had come a long way in terms of building our physical infrastructure. This can be inferred from the global urbanization rate.
Although we are not at the levels of the developed country yet, that just goes to show how much room we have to grow before we catch up with the developed regions.
The same can be said for soft infrastructures that are required to maintain the economic, health, cultural and social standards of a population.
While it is true that most developing countries are still plagued with poor soft infrastructure and corruption, we can expect things to improve for the better, especially with improving literacy and higher technological adoption rate and that brings me to my next point.
Over the last decade, Asia has accounted for a large regional share of global growth in key technology metrics and it is reasonable to assume that Asia will continue to account for a large share of the technological developments in the world.
Now the reason why this is important is that technological improvements enable people, land, and existing capital to become more productive as it allows us to do more with fewer resources.
Putting everything together, as the literacy rate increases, people will start to look for more opportunities to improve their lives and place more emphasis on equality and fairness.
As a result of this, people will start to migrate and move to places for better opportunities and this will spur on the demand for better physical and soft infrastructure.
Technological adoption, improvements and innovation will help accelerate the growth and development process in Asia as people are more connected online and information can be transferred and delivered at a faster pace and a greater scale.
This is important because it will contribute to a higher literacy rate and also enhance the soft infrastructure of the region.
We can see already see this happening in some countries within Asia like for example, Myanmar, Indonesia, Vietnam, Thailand, etc.
This creates a feedback loop which overall will lead to higher productivity in Asia as now, we can bring out the full potential of the people and resources of the region and maximize the value that can be created given an amount of input.
Summary of the thesis
Now that we’ve gone through the factors of population and productivity, I hope you gained a better understanding of the structural forces and megatrends that are already in place to bring Asia to the next level.
Asia is expected to contribute around 50% of the global economy and as investors, if you are looking for growth, you have to participate in the growth that Asia will provide in the next 10-20 years.
Investing solely in developed regions like North America and Europe will provide you with stability but it will not provide you with the growth that you need to accelerate your wealth accumulation progress.
How to get started
To participate in Asia’s growth story, the easiest way is to invest in a portfolio that is designed to have high levels of exposure in companies that does business in Asia.
Unfortunately, most providers and solutions that are readily available out there tend to focus on specific countries mainly the US or China instead of being regionally diversified.
If you want to structure something that is regionally diversified with the focus of investing in the Asia region, chances are is that you need to do it on your own.
If you do not know how to get started or if you do not have the time to manage your investments, you can find out more information about how you can benefit from my investment planning services on my website here and reach out to me directly.
Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides:
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This article is meant to be the opinion of the author
This article is for information purposes only
This article should not be seen as financial advice
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