ADB outlines Asia’s investment future

Author: Gemma Varriale | Published: 29 May 2013
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· Asia is a region rich in opportunities. But it comes with significant challenges, a vice president at Asian Development Bank has said;

· The ADB vice president warned a real currency war was likely to strike the region, as result of the Bank of Japan’s quantitative easing programme;

· He also listed bad relations between India and China, the China-Japan island dispute, and the 1.7 billion Asians still living in poverty as significant obstacles to regional investment;

· Topping his list of regional positives, however, was the increasing importance attributed to governance in Asia;

· He also envisaged significant opportunities in China’s real estate market, as well as the region’s new frontier markets.

Asia is a region rich in opportunities. But an Asian Development Bank (ADB) vice president has warned would-be investors to be mindful of its challenges.

Thierry de Longuemar, the ADB’s vice president of finance and risk management, last week outlined the region’s top opportunities, and its most significant challenges for foreign investors.

While Europe has been languishing in an entrenched economic crisis, Asian markets seem to have gone from strength to strength. But, alongside the emerging opportunities, the ADB has stressed the region faces real challenges ahead.

"With around 60% of the world population in Asia, [...] it’s clearly a region of significant importance," said de Longuemar.

Investment challenges

Investors must remain awake to the region’s challenges, however.

"We see the likelihood of a real currency war as a result of the quantitative easing of the Bank of Japan," said de Longuemar.

The second challenge was that the two biggest countries in Asia - India and China - are not on speaking terms. "They are not trading," said de Longuemar.

The impact of that could be huge. "Just to give one example: there are four flights a week between Delhi and Asia; there are 35 flights a week between London and Delhi," de Longuemar explained.

The third challenge the ADB speaker identified was the ongoing China-Japan island dispute. This, he said, was not receding and there were serious threats looming in that part of the world.

The last challenge de Longuemar listed is that 1.7 billion in Asia still live under 2 dollars a day. However, although this present challenges, it could also present would-be investors with opportunities.

Asia’s growth drivers

Nonetheless, de Longuemar believed the growing importance of regional governance in Asia would present significant opportunities for investors looking to put money to work in the region. The Association of Southeast Asian Nations (the Asean group), along with Korea, Japan and China have now planned a clear agenda for a fully-fledged trade union, said de Longuemar.

He believed Asia and Europe could learn important lessons from each other.

"The ATUC [Asean Trade Union Council] is very active putting in place governance with lessons learned from the European Union," he said.

According to de Longuemar, the euro-area crisis had also significantly altered the debate in Asia around the benefits of adopting a common currency. "It was talked about a few years ago but not anymore, given what is perceived as a failure of the eurozone," he said.

He was optimistic that the possibility of including China’s renminbi in the SDR [special drawing rights] would have a positive impact on regional investment. "This is likely to happen in the next five years; that’s one opportunity," said de Longuemar.

Asia’s rising middle class would be a major regional growth driver, he explained. While China’s real estate market, and the promotion of interregional trade across Europe, the US and Asia presented additional investment opportunities.

Lastly, opportunities in Asia’s new frontier markets should not be overlooked, the ADB vice president told delegates at the International Capital Market Association’s (ICMA’s) annual general meeting in Copenhagen last week.

Myanmar is the most recent of these emerging tiger economies. With a population of 60 million, Myanmar is huge, and geographically very important, said de Longuemar. It will create a link between the Indian Ocean and China, which is set to have significant impact on the way China trades with the rest of the world.

Although North Korea could also present an opportunity, it may be too soon to mention, said de Longuemar.

More coverage from last week’s ICMA:

Liikanen reveals why he had to split the banks http://www.iflr.com/Article/3210023/Regulatory/Liikanen-reveals-why-he-had-to-split-the-banks.html

ECB: how to make Europe’s banking union work http://www.iflr.com/Article/3211202/Banking/ECB-how-to-make-Europes-banking-union-work.html

Revealed: the future for asset management http://www.iflr.com/Article/3211375/Regulatory/Revealed-the-future-for-asset-management.html