By any standard, investors thinking globally have to consider Asia, home to most of the planet’s population and its fastest growing markets.
While the vast continent obviously has a myriad of local issues investors should consider, here are some macro trends that bear watching:
China’s Growth Rate
“China is the 800-lb. gorilla of Asia, and is currently undergoing a huge transformation,” says Robert Brusca, chief economist for New York-based Fact & Opinion Economics. “Whatever happens will have a huge effect on Asian and global markets.”
China is in the midst of making a transition from relying on exports to drive its economy to developing demand to fuel more domestic consumption, Brusca explains. That transition has resulted in slower growth, he says, and advisors and investors need to keep an eye on the country’s growth rate and what direction it trends.
The world’s most populous country also has new leadership this year. “A key factor to watch is the economic program that the new team in China will unveil and how fast it will impact economic growth,” says Virginie Maisonneuve, London-based head of global and international equities for Schroders.
Japanese Monetary Policy
Japan’s more aggressive monetary policy has resulted in the depreciation of the yen, boosting exports and the economy. Japanese household spending hit a nine-year high in March, while the jobless rate fell to a four-year low.
The big question for investors is how long Japan is able to continue this policy before feeling pressure to stop from the G-20, Brusca says. “The policy helps Japan but put pressure on its trading partners,” Brusca notes. “They can only cut Japan so much slack.”
Local Capital Markets
Deepening of local capital markets in Asia has been a significant long-term trend, notes Rajat Jain, partner and senior research analyst for Litman Gregory. As emerging markets have developed, demand for capital has strengthened local markets, a good gauge for global investors, Jain says.
Nonetheless, local markets can still be susceptible to inflows and outflows of foreign capital, Jain warns. Stronger economies, he points out, will be “more dependent on local investment and less on foreign capital.”
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