Uncapped Innovation

How do you view the current state of innovation within Asia?

A lot of the focus from international investors has been on innovative tech stocks in China. It’s not surprising. Since the initial public offering (IPO) of Ant Group was cancelled in 2020, the Chinese government has overhauled regulation of its booming internet and e-commerce sectors. The intervention was aimed at improving oversight, stabilizing exuberant capital flows and safeguarding consumer choice but its execution was heavy handed and poorly communicated which has generated bearish sentiment among foreign investors.

These stocks in China have also been negatively impacted by ongoing geopolitical tensions with the U.S. as well as by China’s zero-COVID policy which has seen large swathes of the country plunged into lockdown. But there are reasons to be positive. We see internet regulation and zero-COVID as temporary headwinds which we expect to unwind over the coming months and while tensions with the U.S. will likely remain, valuations stand out. For many Chinese internet companies, valuations are nearing all-time lows and as the environment becomes more favourable we expect them to positively reprice.

While we see a promising recovery in China, it would be a mistake to focus all our efforts there. Beneath the global inflationary headwinds, Asian economies are resetting after the pandemic and innovation is growing. India, for example is very exciting. There are many interesting, innovative companies including some recent IPOs and while the country is still probably 15 to 20 years behind China when it comes to internet businesses and e-commerce platforms, it's moving in the right direction. There's also Indonesia, which we are excited about, where it is more about consumer-facing innovation. For example, auto dealers are working in partnership with Japanese companies to bring EVs to the Indonesian market. There is also a general uptake in digital services, particularly fintech and eCommerce.

And, of course, South Korea and Taiwan, have thriving innovative and technology-driven companies that warrant attention.

What are the key innovative developments you’re seeing?

For South Korea, the most interesting moves are within electric vehicle (EV) batteries. In the global market, roughly 90% of these batteries are made by Asian companies based in South Korea, Japan and China. There are several South Korean companies that are prospering and even investing in the U.S., so that’s becoming a global story.