CONTRIBUTORS
Christy Tan
Investment Strategist
Franklin Templeton Institute
Opportunities in Asia-Pacific markets for today and the next 20 years
Investors with global portfolios can enhance their risk-reward balance by exploring diverse opportunities in Asia-Pacific (APAC) markets. As the world’s largest and most populous region, APAC is highly dynamic, encompassing both developed and emerging markets. While many investors are aware of the region’s opportunities and challenges, our research highlights compelling reasons for a deeper examination. Hidden opportunities abound, and no two markets are the same. Even those facing challenges may benefit from innovations aimed at overcoming them.
We present a three-part research study covering current macro conditions, an investment toolbox for consideration and the megatrends shaping APAC’s future. We identify the resulting investment opportunities and highlight the sectors most likely to benefit.
Key takeaways
APAC: A diverse landscape
While global shocks of the past five years—the COVID-19 pandemic and the Russia-Ukraine War—had adverse impacts on APAC markets, the region emerges from these challenges with distinct advantages.
- Equity sectors in APAC markets continue to offer diversification relative to the United States and from each other, and fixed income sectors offer attractive income sources.
- Many APAC countries, powered by an expanding consumer base, are growing faster than the developed world.
- APAC economies are generally less dependent on exports for growth.
- Debt levels in the region are generally manageable and investment levels are supportive of further growth.
Investment toolbox
Analysis and comparisons of investment opportunities in the APAC region demonstrate key points for portfolio considerations.
- Today, APAC assets offer improved risk and/or reward potential relative to an index of broad global equity/bond exposure.
- The dispersion of investment characteristics across the wide variety of Asia-Pacific markets means that investors need to carefully consider which assets can best achieve the desired portfolio effect.
- We believe investors should consider active strategies as tools to target highly specific APAC opportunities.
Future waves of opportunity
Long-term demographic, social and technological trends are likely to transform the APAC region over the next 20 years, creating investment opportunities in many industry sectors.
- A baby bust in many countries will shift economic models toward greater consumption and stimulate innovation in labor productivity.
- Urbanization and the growth of mega cities will compel massive new investment in physical infrastructure.
- The energy transition from fossil fuels to renewables will expand new sectors of the region’s economy.
- Last, the emergence of advanced communication technologies will bring regional hyper-connectivity, transforming the way people live and work.
Uncover APAC's Investment Potential
The APAC region offers a wealth of opportunities for investors who are willing to embrace the challenges and opportunities of these fast-changing markets and sectors. We believe that by adopting a strategic and informed approach, investors can unlock the full potential of the APAC region.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Active management does not ensure gains or protect against market declines.
Equity securities are subject to price fluctuation and possible loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Changes in the credit rating of a bond, or in the credit rating or financial strength of a bond’s issuer, insurer or guarantor, may affect the bond’s value.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
To the extent the portfolio invests in a concentration of certain securities, regions or industries, it is subject to increased volatility.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
Currency hedging is designed to minimize the impact of currency fluctuations on returns, it does not necessarily eliminate exposure to the currencies. The return of the currency-related derivatives will not perfectly offset the actual fluctuations between the currencies and the U.S. dollar. Currency management strategies could result in losses if currencies do not perform as expected.
Companies in the infrastructure industry may be subject to a variety of factors, including high interest costs, high degrees of leverage, effects of economic slowdowns, increased competition, and impact resulting from government and regulatory policies and practices.
Securities issued by utility companies have been historically sensitive to interest-rate changes. When interest rates fall, utility securities prices tend to rise; when interest rates rise, their prices generally fall.
The manager may consider environmental, social and governance (ESG) criteria in the research or investment process; however, ESG considerations may not be a determinative factor in security selection. In addition, the manager may not assess every investment for ESG criteria, and not every ESG factor may be identified or evaluated. The managers’ environmental, social and governance (ESG) strategies may limit the types and number of investments available and, as a result, may forgo favorable market opportunities or underperform strategies that are not subject to such criteria. There is no guarantee that the strategy’s ESG directives will be successful or will result in better performance.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio.