1. HSBC’s ten investment themes for the next 10 years

HSBC’s ten investment themes for the next 10 years

Asia has benefitted from globalisation in the past few decades. The associated accumulation of wealth set in motion...

By: | New Delhi | Published: June 28, 2016 2:12 PM
HSBC in a report has come out with a list of 10 trends that are set to continue and are at the base of the ten selected investment themes for the next ten years. (Reuters) HSBC in a report has come out with a list of 10 trends that are set to continue and are at the base of the ten selected investment themes for the next ten years. (Reuters)

Asia has benefitted from globalisation in the past few decades. The associated accumulation of wealth set in motion various trends across the region, such as urbanisation, the rise of an Asian middle class, but also demand for a cleaner environment and healthier lifestyles.

HSBC in a report has come out with a list of 10 trends that are set to continue and are at the base of the ten selected investment themes for the next ten years.

Also Read: India has low debt burden, growth outlook promising: HSBC

These trends often unfold irrespective of the macro-economic conditions in Asia. Interest rates might rise or fall, but this is unlikely to reverse the process of urbanisation. The business cycle can slow or accelerate these processes, but it won’t put these processes in reverse.

From market stall to super mall: As urban centres develop, so does formal retail. Consumers are willing to pay higher prices for better quality, a process called “premiumisation”. In addition, differences in urban infrastructure have led to a proliferation of different retail formats across the region. This offers growth opportunities for companies that can react to these changes, such as Uni-President in Taiwan, Hindustan Unilever in India, and Matahari Department Stores in Indonesia.

Beauty and the East: The pursuit of physical beauty and better health has become big business in Asia. Spending on healthcare and beauty is rising fast across the region; the outlook is particularly bright in India. There is steady growth in spending on cosmetic surgery, as well as on general health products. While positive for healthcare companies in general – from hospitals and drug manufacturers to companies selling cosmetic surgery products – the dynamics and intensity of competition vary widely by country and sub-sector. By virtue of their large populations, China and India are the two most important markets where an
increase in healthcare spending could bring substantial benefits to major companies in the industry. India’s Apollo Hospitals, for example, is at the tail-end of a large rollout of new capacity. In China, competition in cosmetic surgery is heating up.

Robots rule: Japan and Korea have 10x as many robots per worker as China. This is expected to change. As wages in China rise and demand for automated processes and service robots rises, more companies have jumped into this market. While competitive, HSBC looks for those that are dominant in particular applications, such as Taiwan’s Delta. Virtual reality (VR) is another growth area with plenty of new applications; all need OLED screens, an area of strength of some Korean companies.

Financial inclusion: More Asians have better access to a wider range of financial services than ever before. This benefits banks, insurers, asset managers in countries where this trend is strong, such as India, Indonesia and the Philippines. This is one of the strongest long-term investment themes in Asia, and one that is largely insensitive to fluctuations in economic cycles. It offers growth opportunities for financial institutions that can capture these trends, such as deposit-taking franchises that have good rural exposure across countries like Indonesia, India and the Philippines. Insurance companies selling their products through bank branches (or online) should benefit as well.

Travel and exploration: Asians are travelling more and booking more trips through online travel agents. Chinese tourists continue to flock to Korea; in Hong Kong, there are signs of stabilisation after the recent weakness in visitor numbers. Regional networks have started to emerge – China’s Ctrip acquired a stake in an Indian online travel agent earlier this year. More travel also benefits duty free shops and makers of luggage.

Defence on the offence: Asia’s total defence spending has increased 75% over the last decade, growing significantly faster than the Americas and Europe. The defence industry has attractions for investors, such as relatively high barriers to entry, few competitors, relatively visible and secure revenue streams and a continuous product development roadmap.

New energy: The Paris Climate Agreement widened commitments to decarbonise the global power mix. Demand for renewables is rising as countries commit to decarbonising their power mix. Wind and solar are the obvious growth sectors, but the volatility in the energy they generate requires a smarter electricity grid, which is good news for the makers of this specialised equipment. In China, grid access for wind and solar power is improving. In India, debt issues related to the distribution of electricity are gradually being handled. In India, the government has set an ambitious target to increase renewable power at a CAGR of 26% by FY-22.

Charge me: Electric vehicle sales are set to rise dramatically and are projected to be 35% of total car sales by 2040. If the percentage of electric vehicles on the road rises to 3.8% in 2020 from 0.4% in 2014, demand for lithium-ion batteries will rise 14x. This benefits battery makers in Korea, such as Samsung SDI. Indian companies like Tata Motors, Mahindra & Mahindra and Maruti are already working on developing hybrid and electric cars. However, setting up a local supply chain for EV components like batteries is essential for the success of this initiative in India.

New media models: Across Asia, consumers are increasingly willing to pay for online video and music content. This marks a shift away from the advertising-driven business models to one where consumers pay. This offers growth opportunities for online portals Baidu in China, but also Naver, in Korea, as well as content providers, including movie makers in China and Korea.

Asia’s global challengers: To facilitate urbanisation, investments in urban infrastructure are required. Companies involved in connecting cities and urban lifestyles acquired new skills and technologies in the process. This allowed some to emerge as global challengers in their respective industries.

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