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As in the world of wine, investment tastes are inclining towards the emerging nations

Around 15 years ago, the traditional old-world wine producers such as France, Spain, Italy and Portugal controlled close to 95 per cent of the key export markets, the UK being one of the leading consumers. Nowadays, this figure is closer to 45 per cent and new-world wine producers are overtaking many of their old-world counterparts.

Some of this growth in market share is no doubt attributable to the strategic approach that new-world wine producers took to marketing their products. Unhindered by restrictive European labelling laws and not locked in to describing their product in a regional-specific way, new-world wine producers could focus on providing the consumer with an easy to understand and drinkable product.

The rapid growth of wine sales in emerging markets such as Eastern Europe and Asia-Pacific, driven in part by the perceived health benefits of drinking red wine, have helped the new-world wine producers to thrive. Rising affluence in these markets has encouraged consumers to shun traditional spirits and buy wine instead. It is in these emerging markets that many wine producers see scope for expansion.

In some respects, a similar battle is being fought over investment in the developing markets of Asia and the more developed markets of the US, Europe and the UK. I would argue that now is the time to discover the attractions of adding an Asian flavour to your investment strategy, particularly some of the smaller Asian nations such as Malaysia, the Philippines, and Singapore. In our view, these countries are in the right place to benefit from Chinese demand and their market valuations suggest it is the right time to invest.

Chinese industrialisation has been one of the most dramatic transformations of any economy in recent years. The way that companies have started to move up the value chain from low value-added assembly work to skilled precision engineering and construction has been nothing short of remarkable.

It is not just manufacturing that drives the market. Rising income levels in China have been boosting consumer demand for housing, luxury goods and services while creating a new, dynamic middle class. The Chinese economy has been opening up to the public through initial public offerings, adding a further level of sophistication to the economy while domestic strength has fuelled trade growth across the region.

But attractive as the Hong Kong and Chinese markets might be, focusing only on these two markets could mean missing out on interesting opportunities elsewhere in the region. Companies across Asia are global leaders in the building, engineering and capital goods industries and are key beneficiaries of growing demand from the Middle East for building projects.

As these economies have taken off, so demand for office space has buoyed property markets in Singapore, the Philippines, Indonesia and Malaysia. Add in the spending patterns of a newly emerged middle class with a penchant for consumer items and we think the region is experiencing more than a cyclical resurgence.

In fact, we believe Asia is in the relatively early stages of a sustained secular upswing and is far less dependent on the US economy than previously. In our view, the faster economic growth rates in Asia compared with the more developed markets of the West will result in a fundamental reallocation of capital towards Asia over the coming few years.

Asia has weathered the financial crisis of 1997 and many countries are sitting on big currency reserves. The Asian region is structurally stronger in terms of balance sheet strength and economic growth than the more developed markets and economies of the West. We think the region’s economic growth, liquidity and equity valuations make it an attractive long-term play over the coming years.

We believe there are plenty of investment opportunities on offer as the full-bodied flavour of the Asian region is uncorked over coming years.

Ian Pascal is marketing director of Baring Asset Management


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