APAC is positioned to benefit from some of the most exciting global trends that offer unparalleled investment opportunities, including urbanisation, mega cities, digitisation and the energy transition. Previous features in this series have focused on the region’s diversification benefits, short-term opportunities, and why active strategies work best. Buckle up for the long-term view.
Of all the trends set to impact APAC in the coming years, connectivity offers one of the most compelling opportunities in terms of monetary revenue and the speed at which the sector will develop. It is also immune from geopolitical risk.
“Even if economies face growing competition and deglobalization, connectivity has its own momentum,” explains Christy Tan, managing director, investment strategist at Franklin Templeton.
5G penetration is forecast to hit 24 per cent by 2025 (up from 3 per cent in 2020) and 6G promises even faster connections in a dramatic boost to GDP that she says will be led by China. Connectivity is also spurring mobile penetration as people use smart phones to pay and socialise, creating an ecosystem of jobs, tax and revenue streams. Digitization also provides opportunities in technology like blockchain, AI, cloud computing and further up the supply chain, satellite connection.
Amber Rabinov, head of thematic research at $300 billion AustralianSuper, the country’s largest superannuation fund, believes that digital transformation is one of the most significant developments since the GFC. The team views trends through a global rather than regional lens, and she points to the changing composition of the top 10 stocks in the world by market capitalisation off the back of staggering earnings growth to illustrate the point.
“In 2024, nine out of the top 10 stocks in the world have a technology bent – chips, products or services like cloud computing,” she says. “Only one top 10 stock in 2004 remains a top 10 stock in 2024 – Microsoft.”
She also believes that AI’s impact on efficiency and productivity could arrive sooner than expected. “Previous adoption cycles show that it takes at least one decade and often two for a new technology to filter through the economy. There is good reason to think the AI transformation will be relatively rapid.”
The Government of Singapore Investment Corporation, GIC, guardian of Singapore’s estimated $770 billion foreign reserves, views investment in technology according to three themes: opportunities in disruption, protecting existing investments facing disruption and leveraging tech for its own investment and organisational processes.
One team assess industry trends and size the technology portfolio and composition. Another handle early-stage investments through venture capital funds, co-investments and directs supported by a strategy shaped around staying invested for the long term, including post-IPO. It enables tech companies to tap GIC for capital at different stages of their growth and connects the investor to the whole life-cycle of the company.
The green transition
Investors are also positioning to benefit from APAC’s energy transition from transport electrification to wind and solar, EV battery production and the development of low carbon tech. At Franklin Templeton, hydro is fast-becoming one of the most compelling investments bridging the transition, urbanization and infrastructure. Tan says the region needs half a trillion dollars in infrastructure investment between now and 2030.
“All investors in urbanization infrastructure must consider how water comes into play,” she says. “Hydro offers some of the most compelling opportunities.”
AustralianSuper, alongside Ontario Teachers’ Pension Plan, has invested in India’s National Infrastructure Investment Fund, NIIF. The investors put $1 billion each into India’s power, roads, airports, digital infrastructure, and logistics in 2019.
“We are a long-term investor so we can be patient. We don’t have to rush for opportunities and have strong cash flows,” says Rabinov.
GIC’s long-term capital makes it well positioned to ride out the short-term opportunity costs in green tech that some investors aren’t ready to bear. Like in 2023 when exits in climate tech declined and investment in the sector fell 30 per cent on the previous year despite the clear, long-term opportunity in the energy transition.
“Patient capital like ours is well positioned to navigate climate tech’s potential J-curve,” said chief executive Lim Chow Kiat in GIC’s annual report.
Shifting demographics
APAC’s shifting demographics also promise risk and opportunity ahead.
“The percentage of the population above age 65 across APAC is expected to rise significantly between now and 2040, and that 18 per cent of women will be in this age group, a rise from 11 per cent.” says Tan who points to statistics that show China, Japan and South Korea could have around 64 million less people by 2040.
But in keeping with APAC’s celebrated diverse economies, population decline in China, Japan and South Korea will be offset by large young populations in India, Indonesia and Pakistan. Moreover, the shift in demographics presents new opportunities.
“Older people have a different set of needs around healthcare, e-commerce and leisure. Expect a shift to a more consumption-led model,” predicts Tan.
Still, investors are preparing for more challenging long-term trends too. At AustralianSuper the focus is on trends around deleveraging China and deglobalization and the expectation that trade volumes as a share of global GDP will continue to fall.
“Tariffs, subsidies and industry policies are front and centre in the current political and economic debate,” says Rabinov. “This process of trade fragmentation is occurring across geopolitical blocs, and we expect it is more than likely to continue.”
In APAC the renaissance of industrial policy has recently manifest in Australia under the Future Made in Australia framework. Rabinov expects government support will focus in areas like microchips, critical minerals, energy security and increasingly, defence. Despite the accompanying investment opportunity, she flags the growing role of governments in industrial policy is also spiking risk in the shape of larger fiscal deficits and debt levels. “This is not new, but it has accelerated,” she says.
Getting it right
Successfully investing in long-term trends requires awareness of where revenue streams are coming from and ensuring investments are scalable. Commentators also advise on a solutions-based approach as opposed to picking unproven opportunities.
“Pick investments that provide solutions to a problem like better healthcare facilities or more carbon reduction,” suggests Tan.
GIC also approaches investment through a problem-solving lens where a clear understanding of the business model in tech and spending time with production engineers is a prerequisite to investment.
“After seeing what problems they can or cannot solve in one domain, we can gauge the success of other domains,” states the investor.
Investors face fierce competition for assets in future-focused sectors like data centres and energy. But Tan celebrates the competition as indicative of the opportunity.
“Competition is a good thing – it ensures efficiency,” she says.
Long-term trends can also surprisingly quickly pivot. Regulation can change and technology investment is always accompanied by the risk of disruption down the line.
“Incumbents are constantly challenged by disruptors,” states GIC.
In a final note of advice, investors espouse the importance of boots on the ground. GIC has a local presence in innovation hubs in Beijing and Mumbai and AustralianSuper opened a Beijing office in 2012 for research purposes. Rabinov adds that internal investment is also a crucial pillar to successfully capturing future trends.
“Wherever possible, investments should be managed by those with local insights and proximity to the deals and target assets,” she concludes.
Published in partnership with Franklin Templeton Investments
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