Asia Has Many Faces; Businesses Will Have to Adapt

2021-02-04     thesmartinvestor
Asia Has Many Faces; Businesses Will Have to Adapt

By 2030, there will be 5.4 billion consumers from the middle class worldwide, according to research from Brookings Institution.

Close to two-thirds of that cohort will be from Asia.

And that’s a big deal.

By 2030, the Asian middle-class is expected to increase their spend to US$36 trillion.

At that scale, this consumer group will have an outsized influence on the demand for products and services and how they are delivered.

In turn, where these consumer dollars flow could also decide whether a business or industry thrives or falls behind.

And as investors, we should follow the money.

There is no Asian consumer

There is no such thing as an Asian consumer.

The demographics and population size of Singapore and Malaysia, for instance, are different. There’s a mix of languages between our neighbouring countries as well.

Therefore, it shouldn’t be surprising that our needs and wants differ.

And businesses looking to fulfil them will have to adapt accordingly.

That sentiment was not lost to Sea Ltd (NYSE: SE), the owner of the popular online shopping site, Shopee.

The eCommerce site adopted a hyper localised approach, tailoring its marketing strategy by country.

For instance, Shoppee relied on celebrities as brand ambassadors in Thailand and Vietnam but tweaked its focus to flash sales in Malaysia where big discount events are better received.

This customised marketing approach worked.

According to Similarweb, Shopee became the most used app by the fourth quarter of 2019, surpassing the previous market leader, Lazada.

Mobile is the internet

In North America, internet traffic is split down the middle between mobile devices and desktop computers, according to Statcounter. The same ratio applies in Europe.

However, when it comes to Asia, mobile devices dominate internet traffic, accounting for over two-thirds of the overall pie, compared to less than one-third from desktop computers.

Hence, Asia’s internet is, by default, mobile.

This factor will become increasingly more important as Asia accounts for half of the world’s internet users and is set to grow further in the future.

The pandemic has only accelerated the move online.

According to a study by Google and Temasek, one out of every three digital service customers in Southeast Asia was new, moving their activities online due to COVID-19.

In addition, digital users in the region are spending more time online. In Singapore, the average time spent has increased from 3.6 hours pre-pandemic to 4.1 hours after COVID-19 hit our shores.

Companies such as local start-up Shopback adopted a mobile-first strategy and has made tremendous headway as a result. The company saw 70% of its transactions come from mobile in 2018, dwarfing traffic from desktop computers.

The coming 5G wave

Apple (NASDAQ: AAPL) started accepting pre-orders for its 5G-enabled iPhone 12 in late October last year.

But a month before the announcement, China reported that there were already 110 million 5G smartphone users in the Middle Kingdom, making it the largest 5G market in the world.

Despite the large cohort, the millions of 5G users are just a fraction of the estimated 1.6 billion mobile subscribers in China.

The increase in data speed and lower latency have the potential to unleash and enable a whole host of new technologies and applications, including the adoption of the Internet of Things, autonomous vehicles and smart estates.

The number and variety of new companies and businesses is likely to increase alongside the 5G wave, thus providing more opportunities for investors.

Singapore as Asia’s Silicon Valley

According to a report from TechCrunch, Tencent (SEHK: 0700), Bytedance (the creator of Tiktok) and Alibaba (SEHK: 9988) have set their eyes on Singapore as their regional hub of operations.

The trio are set to join their US tech counterparts, Alphabet (NASDAQ: GOOGL), Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), and Salesforce (NASDAQ: CRM) in establishing our city-state as the centre for key functions such as engineering and research and development.

As the tech giants entrench themselves here, new jobs will be created and there will be a spillover effect to other parts of the nation’s economy.

For instance, Alibaba has moved to acquire a stake to redevelop the AXA Tower while Bytedance is said to have leased three floors at One Raffles Quay, a commercial property that is jointly owned by HongKong Land (SGX: H78), Keppel REIT (SGX: K71U) and Suntec REIT (SGX: T82U).

There’s a good reason why major tech firms are setting up shop in Southeast Asia.

According to the Google and Temasek 2020 e-Conomy report, the internet sector in the region is expected to triple from a gross merchandise volume (GMV) of US$100 billion in 2020 to over US$300 billion by 2025.

The silver generation

Asia is also set to become the home for 923 million elderly folk by 2050, making it the oldest region in the world, according to the Asian Development Bank (ADB).

With falling fertility rates and rising life expectancy, countries such as Singapore and South Korea are projected to have around a third of their population aged 65 and over while China is expected to have nearly a quarter of its population in the same age bracket.

The greying population in Asia will likely lead to higher healthcare spending, which bodes well for healthcare providers and adjacent services such as nursing homes.

REITs such as ParkwayLife REIT (SGX: C2PU), which owns nursing homes in Japan, could be beneficiaries of the impending surge in elderly folk that require long-term care.

Get Smart: A stockpicker’s market

Spotting trends is one thing.

But it’s not enough.

As investors, we have to go one step further and find the right companies that can serve the demands and needs that these new growth paths create.

Not every company within healthcare, for instance, will be successful.

There is also no guarantee that every player within the 5G market can turn its business into a profitable venture.

After all, where there is profit to be made, competition will naturally arise for the same pool of consumer dollars.

As always, we have to be selective in the companies we choose to invest in if we want to make money in the decade ahead.

And if we are right, we could be beneficiaries of a decade of growth ahead.

Note: An earlier version of this article appeared in The Business Times.

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Disclosure: Chin Hui Leong owns shares of Alphabet (the parent company of Google), Tencent, Facebook, Amazon, Salesforce, Apple, Suntec REIT, ParkwayLife REIT, and Hongkong Land.

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