The vast majority of Kiwis have very little money invested in Asia directly. Yet this continent that stretches from India/Pakistan in the West to China/Japan in the east is, economically, the fastest developing in the world.
It offers, quite simply, says AMP Capital’s director of investment strategy and chief economist Shane Oliver exposure to stronger growth than traditional overseas markets. Nor do these countries have the debt for us such as the United States, Australia, Europe and Japan, without the debt problems.
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There are many reasons to invest in Asia and elsewhere overseas – although each individual investor needs to consider his or her personal investing objectives and time horizons. Those reasons can include:
Diversification. The New Zealand economy is small. It can be good to expose a portfolio to more than one economy. For example, just because Europe or the United States has a recession, Diversification spares you some of the grief when one market goes awry.
Growth. Whilst western economies are quite mature and expanding slowly at best, Asian ones are in a huge growth phase. Pick the right investments and your investment growth will look very good indeed. Fund managers on the ground in Asia can identify those opportunities with the potential for high growth.
Size. The populations of India and China in particular and the region as a whole are huge. In many parts of the continent, consumers are growing rapidly more wealthy – sometimes 10 to 15% a year - and consuming more.
Demographics. Most Asian countries are playing catch-up in living standards, says Oliver. “Over time that should translate into superior gains in the equity markets.”
Oliver points out that income-focussed investors may want to look closer to home. Dividend yields are typically up to 1% higher in New Zealand and Australia than in Asian countries, and you’re compensated for imputation tax here.
When it comes to markets beyond our shores, most private investors think in terms of equities. Bonds are another option, although their yields on the surface are lower than ours.
The big “however” with Asian government and corporate bonds is the exchange rate. Many Asian currencies are likely to appreciate against the Kiwi dollar over time, he says, which could be beneficial for investors.
Asia is of course a big area. Whilst Singapore and Hong Kong are developed, India and China developing, some of the economies such as Vietnam “have a long way to go”.
Finally, talk of bubble bubble toil and trouble doesn’t cut it with Oliver. “There is disbelief that a communist country can do so well. The sceptics have been around a long time and invariably they’re wrong.” Periods of volatility are inevitable, but that’s not the same as a bubble.
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