PETALING JAYA: Asia’s fast-growing economies with significant scope for economic development catch-up has led Nomura Group to say it is now “Asia’s time to shine”.
The Japan-based banking group said a confluence of global push and regional pull factors are aligning, which could shine a positive light on Asia’s medium-term outlook.
As prospects of subdued global growth and policy rate hiking cycles are ending globally, investors are likely to start looking for new opportunities and place a larger value on sound economic fundamentals as well as sustained growth.
“We believe Asia fits the bill as it has stronger economic fundamentals, pro-reform governments that are actively seeking to improve the domestic business climate, and many new, exciting growth opportunities,” said Nomura Group.
It added since the Covid-19 pandemic, investors have remained underinvested in Asia but, as market repricing shines a positive light on Asia, Nomura expects this to change, and the region to attract more capital inflows.
This is in line with its rising weight in the world economy.
Nomura has identified 10 investment themes for the Asia story, such as supply chain relocation tailwinds, infrastructure development on fast track, Japan’s economic and green opportunities in China
It added Asia is no longer under the impression that China’s economy is plagued with structural problems and geopolitical headwinds and that its growth will be modest over the medium term.
Instead, China’s economy will continue to be a juggernaut in terms of scale, providing more than one-fourth of global growth.
“Even with a slowing China, our medium-term forecasts from 2024 to 2028 have real gross domestic product growth for Asia with 4.2% year-on-year (y-o-y) outperforming other emerging markets (EMs),” it said.
The group believes India and South-East Asia are likely to be the fastest-growing economies this decade instead of China.
Nomura beliefs India and Asean stand to benefit from shifts in the global supply chains while public infrastructure expenditure is now a top priority in EM Asia.
India will be able to maintain its services-driven growth model thanks to digitalisation.
China, meanwhile, despite its structural difficulties, is the world leader in the production of renewable energy, new energy vehicles and lithium batteries.
Indonesia has made progress in going downstream of its metal ores which is likely to gain more traction.
Further, artificial intelligence-driven technology is creating opportunities for component manufacturers in South Korea and localisation beneficiaries in China.
Japan’s economic recovery is also likely to gain from the tectonic shift in its companies’ price-setting behaviour.
“As market repricing shines a positive light on Asia, we expect this to change, with recognition that Asia is well on its way to reassessing the weight in the global economy that, on the basis of its population, it held in the 18th century,” said Nomura group.
The group added by saying that faster growth should attract more capital inflows, lift business confidence and drive domestic investment, known as the so-called accelerator effect.
Despite all the risks such as geopolitical fragmentation, climate change, politics and fiscal execution in EM Asia, Nomura Group believes global investors will soon start to appreciate Asia’s superior risk-adjustment returns.
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