Rebooting the global asset management industry

Rebooting the global asset management industry 47 As for geographies (Figure 4.3, lower panel), there are signs that the ‘U.S. exceptionalism’ that has long dominated investor thinking has waned somewhat, with the outset of the trade dispute and the market ructions that followed (53%). Besides, the U.S. may face retaliatory measures from all its current trading partners, while these countries will only face an increase in tariff barriers from a single trading partner, the U.S.. That is why a similar number of respondents now favor Europe (51%). Almost all the large U.S. domiciled asset managers in our survey expect to extend their footprints in fast-growing economies like Greece, Portugal and Spain where rising affluence and pension reforms are creating new opportunities. Emerging markets (EM) are expected to be the third growth engine for the asset industry with one caveat: EM excluding China (48%) is likely to be favored more highly than China (38%). One reason is that EM countries are now a heterogenous group without a neat acronym (see Insights). Another reason is that China is now at the vanguard of the trade dispute with the U.S. whilst, at the same time, tackling an entrenched deflationary bias caused by the end of its almighty property bubble. Yet, other respondents see China as a great opportunity, as it has been successfully diversifying its export base among the newly expanding BRICS club, which now also includes Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates (UAE). China has also been advancing towards high-end manufacturing, where it has some world class companies. According to the Australian Strategic Policy Institute, China’s global technological lead now extends to 37 out of 44 critical sectors, spanning robotics, energy, physical environment, advanced materials and key quantum technologies. China is too advanced and too big to ignore. China is too advanced and too big to ignore. Insights Not all Asian emerging markets are created equal The tariff policy of the newU.S. administration is likely to hit China and the tenmember countries of The Association of Southeast Asian Nations (ASEAN) comprising: Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. In response, they are likely to domonetary easing, or currency devaluation or both. In the past five years, being part of the broader Asian EM indices, the high volatility and subpar returns of Chinese equities have dominated. This has overwhelmed the positive performance of other ASEAN equities in the indices as well as that of India. Investors are now looking at each country on its own merits, as diversity increasingly defines their political systems, economic maturity, business cultures and risk exposures. The emerging market label conceals more than it reveals. The stellar growth of the ASEAN bloc continues to be powered by strong demand for raw materials from their giant neighbors, China and India. Furthermore, intra- ASEAN trade has been booming, thanks to new trade liberalization architecture like the Regional Comprehensive Economic Partnership. Above all, some nations are also developing specialist niches in the electronics supply chain, focusing on 5G rollouts, AI products, the internet of things and electric vehicles, as well as their batteries. Overall, the region displays strong interest in GenAI’s benefits rather than apprehension about its risks. Our clients see ASEAN investments as a credible diversification play at a time when developed markets are faced with anemic growth, higher inflation and budgetary problems. A Singaporean asset manager “Germany’s latest €1 trillion infrastructure and defence program is expected to boost growth across the EU.” “South Korea, Singapore and Taiwan are now developed economies with democratic traditions andmature institutions.” Interview Quotes