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10 Reasons to Invest in Asia 6 comments

by: David Hunkar

October 14, 2009 | about: ADRA / CAF / EPI / EWY / FXI / GXC / IFN / IIF / PGJ / PIN

Many stock market indices in Asia have performed very well this year compared to developed markets. For example,
China’s Shanghai Composite Index is up 59%, India’s Sensex is up 76.5%, Taiwan’s Weighted Index is up 65.5%,
Singapore’s Straits Times Index is up 52.2% YTD as of Oct 12th. European indices have risen about 20-30% this year.
The S&P 500 has increased 21% YTD. As growth continues to be sluggish in the developed world, investors are flocking
to Asia for higher returns.

So should you invest in Asia?

The answer to the above question is a resounding Yes. The following 10 reasons were identified by CLSA Asia-Pacific
Markets in the CLSA Quarterly, Autumn 2008 report on why one should invest in Asian markets.

1. Asia’s Billion Boomers - People, Money and Aspirations.

Asian countries are growing and creating middle-class and upper-middle class people with plenty of money and the
willingness to spend. The growth in domestic consumption will much be much bigger than the post-World War II growth in
the U.S. By 2020, more than 1.2 billion people are projected to have a per-capita GDP of more than $5,000 as the chart
shows below:

click to enlarge

2. China’s consumers will lead Asian and possibly global recovery as the credit markets are loosened and consumer
spending increases. The Chinese middle-class is already spending heavily to improve their standard of living.

3. Asia’s economic size relative to the US is growing fast. Since the 1990s low, its economic size has doubled relative to
the US economy. As countries like China, India grow Asia’s economic power will rise.

4. Asia has the money - lots of it. Many Asian countries have current account surpluses while most developed countries
have deficits. Countries such as USA, UK have high deficits.

5. Asians have plenty of money in the bank. Unlike American consumers who are deep in debt due to the credit bubble,

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10 Reasons to Invest in Asia -- Seeking Alpha http://seekingalpha.com/article/165969-10-reasons-to-invest-in-asia

Asian consumers have money to spend. The chart below shows the loan-deposit ratio of US and Asian banks:

6. Asia is at the start of a demographically driven boost to domestic investment. Hence Asians will take a large role in their
own markets as opposed to foreign investors.

7. Countries in Asia are urbanizing rapidly. More and more people are moving from rural areas into urban cities and towns
in search of better life. This urbanization process will lead to higher incomes, better educational opportunities and higher
spending on the comforts of modern life.

8. Chindia will lead the way. In just 12 years, the combined economies of India and China will equal about 60% of the US
economy. As of this result of this, global political and economic power will shift towards the East.

9. In addition to money, Asians are leading the way in the study of hard sciences which include math, engineering, etc. A
country needs strong and bright thinkers in hard sciences in order to build a better future. More Asian students enroll in
hard science programs in universities than American students.

10. Growing Prominence of Asian markets. In September, FTSE promoted South Korea to Developed Country status.
China’s A shares and Taiwan may be added next. Also “Asia ex-Japan’s weight in the global MSCI has climbed from 3.7%
to 6.8% during the past 12 years.”

With high savings rate and the strong confidence and eagerness to grow and prosper, Asia presents a multitude of
opportunities for foreign investors seeking diversification and growth.

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This article has 6 comments:

Alphameister:
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Couldn't agree with you more. Thanks for making the case so strongly.

Kevin_T:
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I strongly agree with this, the emerging economies of Asia have the wind at their back due to sound balance sheets,
demographics, and freedom from "entitlement drag" that is pulling down the mature Western economies.

There are risks in Asia too. Many of these countries including China lack basic human rights and are not
representative governments. This could lead to political instability especially if economic growth is interrupted for any
reason.

If instability does occur it is likely to develop slowly enough to give the investor time to exit, as long as one pays
attention.

Kansas City...:
Comments (14)
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One major issue is our inherent bias when analyzing the potential of these economies. Particularly with the line,
"Asians have plenty of money in the bank. Unlike American consumers who are deep in debt due to the credit
bubble, Asian consumers have money to spend.". They save more but will not consume at the rate we do. Thus the
high savings rate doesn't necessarily translate into higher consumption for investing purposes (quite the opposite). In
the japanese example people culturally save and do not spend. This doesn't help retail investors there.

tunaman4u2:
Comments (439)
• StockTalk (91)
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"Americanization" of the next few generations of Chinese seems likely though.
Does a stronger Yuan vs the USD counteract the growth though? If the USD decline grows the US doesn't the Yuan
rise slow down China?

On Oct 14 11:33 AM Kansas City Shuffle wrote:

> One major issue is our inherent bias when analyzing the potential
> of these economies. Particularly with the line, "Asians have plenty
> of money in the bank. Unlike American consumers who are deep in debt
> due to the credit bubble, Asian consumers have money to spend.".
> They save more but will not consume at the rate we do. Thus the high
> savings rate doesn't necessarily translate into higher consumption
> for investing purposes (quite the opposite). In the japanese example
> people culturally save and do not spend. This doesn't help retail
> investors there.

Kansas City...:
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Tunaman, actually the opposite seems to be true. Since China has re-pegged to the dollar (www.forbes.com/2009
/03...) then with the dollar dropping so does the Yuan. Although it may seem completely counterintuitive that china is
talking down the dollar when they have trillions in dollar reserves, in fact they may be gambling and betting a weaker
yuan is much more important.

Nojus:

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10 Reasons to Invest in Asia -- Seeking Alpha http://seekingalpha.com/article/165969-10-reasons-to-invest-in-asia

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Trade Chaose
I have read this in November 2007.

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