By Ken Akintewe, Head of Asia Sovereign Debt, Aberdeen Standard Investments
It is no secret that Asia on the whole managed the coronavirus pandemic much better than most western countries. By way of example, as of early March, Taiwan, had reported 955 confirmed virus cases and just nine deaths. In comparison, the UK, albeit with a three times larger population, had nearly 4.2m confirmed cases and 123,000 deaths (1). Owing to much less disruption, Asia’s already rising relative importance in the global economy has therefore increased further.
The great eastward shift
Beyond the one-off impact of the pandemic, there are some more powerful underlying drivers of Asia’s rising economic contribution and the ‘great eastward shift’. Some of these factors, such as large populations with fast growing incomes, helped by urbanisation etc, have been recognised for some time. However, we think some emerging aspects might be less well appreciated.
Growing regional integration
Firstly, an important driver of the ‘great eastward shift’ is Asia’s rapidly growing regional integration. This was already evident in a host of indicators. For instance, 60% of goods traded by Asian economies are within region, 59% of foreign direct investment (FDI) is intraregional, and likewise 74% of Asian travel. Supercharging this trend in the coming decade however will be China’s Belt & Road Initiative – costing an estimated USD1trillion, this is probably the most ambitious infrastructure project ever conceived. It will surely further boost Asian regional growth and integration. While the magnitudes can be debated, we are among those with a relatively optimistic take on the BRI’s transformative potential.
Technology exposure
Secondly, another regional growth accelerant and driver of the ‘great eastward shift’ is Asia’s growing exposure to the technology sector. Simply checking the made-in-label for today’s countless electronic gadgets and smartphones is a reminder of this. However, less well appreciated we think is Asia’s upwards progress in terms of global technology value addition. This is evidenced by the high exposure of the likes of South Korea and Taiwan to the emerging tech themes such as 4G, the internet of things and automation. A critical driver of this is Asia’s growing investment in research & development. A host of indicators (some of which are shown below) reflect the pay-off from this. For example, Asia has captured 87% of global growth in patent filings over the past decade.
