Hong Kong Stock Exchange

Owned by Hong Kong Stock Exchange Group, HKEX is Asia's 2nd largest stock exchange (2014). The HKEX Group is also the owner of the London Metal Exchange, one of the world's largest industrial metal trading platforms. In 2014, there were 1,752 companies listed on HKEX, with total market capitalisation of over HK$25 trillion.⁴ Blue-chip companies within the Hang Seng Index include CK Hutchison Holdings Limited, HSBC Holding PLC (Hong Kong), Swire Group's Swire Pacific Limited, China National Offshore Oil Corporation's Limited and the technology giant, Tencent Holdings Limited.

Due to their proximity with China, many HKEX-listed companies are incorporated in mainland China. These companies are commonly known as “H-Shares”. If the company happens to be listed in one of the mainland exchanges, those would be referred to as the “A-Shares”. Dual listing of both H-shares and A-shares of the same entity are by no means unusual. In fact, many companies, such as Bank of China Limited, Ping An Insurance (Group) Company of China Limited and PetroChina Company Limited, have both A-shares and H-shares offerings.

Shanghai and Shenzhen Stock Exchanges

The People's Republic of China is home to two major stock exchanges – the Shanghai Stock Exchange and the Shenzhen Stock Exchange. In late 2014, there were 979 companies listed on the Shanghai Stock Exchange, with total market capitalisation of close to RMB17 trillion.⁵ The main index of this exchange is the market capitalisation-weighted Shanghai Stock Exchange Composite Index. The other exchange – Shenzhen Stock Exchange – consisted of 1,601 listed companies with a total market capitalisation of over RMB11 trillion in 2014.⁶

Unlike most profit-driven exchanges in the region, these two affiliated entities of the China Securities Regulatory Commission are considered “not-for-profit” organisations to ensure the development of the Chinese capital markets. These two exchanges were previously closed to foreign investors. However, with the 2014 “Shanghai–Hong Kong stock connect” initiative and plans for a Shenzhen–Hong Kong stock connect following that, it appears that the long-term plan is to open the Chinese market to the world.

Singapore Stock Exchange

Singapore Exchange Limited is a public-listed company in the exchange itself. As “The Switzerland of Asia”, Singapore is often seen as the de facto financial hub of Southeast Asia, leading to SGX being considered as one of Southeast Asia's key exchanges. In 2014, SGX was home to more than 700 companies.⁷

The market cap-weighted Straits Times Index (“STI”) tracking Singapore's top 30 listed companies is widely viewed as the go-to benchmark for the Singapore market. However, with many of these 30 companies having significant overseas business exposure, we feel that the STI is far from being just a proxy for Singapore's economy alone. Almost all 30 companies in the index have an international presence.

Many of the STI's constituent companies, such as Golden Agri-Resources Limited, Thai Beverage Public Company Limited and Hutchison Port Holdings Trust, derive the bulk of their revenue beyond Singapore. In 2014, the S$14 billion property powerhouse CapitaLand Limited had 58% of their assets beyond the shores of Singapore.⁸ In fact, 38% of all SGX-listed companies had origins beyond the shores of Singapore.⁹

Bursa Malaysia

Bursa Malaysia Berhad came about from the split of the Stock Exchange of Malaysia into the Kuala Lumpur Stock Exchange and the Singapore Exchange way back in 1973. Like the Singapore Exchange, Bursa Malaysia is also a publicly listed company, listed in Malaysia. Bursa Malaysia had one of the largest numbers of public companies listed on its exchange compared to its Southeast Asian peers. However, with all the companies listed on the exchange having a total market capitalisation of about US$527 billion,¹⁰ it is still smaller than the Singapore Exchange.

The exchange is represented by the Kuala Lumpur Composite Index, a market cap-weighted index of the largest 100 companies listed on Bursa Malaysia. Companies that call Bursa Malaysia home include Sime Darby Berhad (the conglomerate with a market capitalisation of over US$15 billion), Public Bank Berhad (one of Malaysia's largest domestic banks) and Tenaga Nasional Berhad (the largest power company in Malaysia).

Stock Exchange of Thailand

Even with 599 companies listed on the exchange (2014), Stock Exchange of Thailand was not one of the heavyweights in the region. The exchange includes companies with a total market capitalisation amounting to about US$450 billion.¹¹

Some of the major companies listed on the Stock Exchange of Thailand include PTT Public Company – the major integrated oil and gas company and also one of the largest company by market capitalisation listed on SET, with a market capitalisation of over THB900 billion (2016).¹²

Another notable company on the SET is Siam Cement Public Company, a leading conglomerate in Thailand, with operations ranging from building materials to chemicals and packaging operations. The SET has some interesting companies listed on it, such as the Airports of Thailand Public Company. Not only does the company operate six international airports in Thailand,¹³ they also have several other real estate-related operations.

With such a wide variety of companies to choose from, it pays for investors to be patient when it comes to the selection of an investment opportunity here in Asia. The next time someone tells you about the lack of investment opportunities in Asia, you know where to point them.

The Rise of Chinese Consumers

Probably the greatest growth story of the last 30 years is China. China has risen from being one of the world's poorest nations to the world's second-largest economy.¹⁴ Pre-1979, China was a relatively closed and isolated country. However, since Deng Xiaoping's “Open Door Policy” in 1978,¹⁵ China's annual real domestic product grew by about 10% a year over the next three decades,¹⁶ making it one of the fastest-growing economies in the world.

The mercurial rise of China was in no small part due to China transforming from an isolated nation to one that embraced globalisation. China pushed itself to work with the global communities such as joining the World Trade Organization and establishing trade relations with the United States in 2000. During this period, China rode on the advantage of Asia's low-cost production ability to meet the demand of the developed nations. This was reflected in the 700% increase in China's GDP per capita (US$) since the start of the 21st century (2000–2015).¹⁷ Even the 2008 global financial crisis did little to slow this runaway growth train.

Yet what's fascinating is that even after the rapid growth in the past 30 years, China's real per capita GDP was still only roughly 20% of the United States in 2012.¹⁸ This led to the common belief that it is no longer a question of if China will overtake the US as the world's largest economy but when. And as China develops from a production-based to a consumption-based economy, we are looking at one of the most-publicised investment themes – The Asian consumer story. With over a billion people moving up the economic ladder, it's not surprising that the China consumer story is one of the most popular investment themes. As people grow wealthier, their consumption could increase.

This was particularly evident from the huge push by three of the largest luxury goods companies to move into China:

• LVMH Moët Hennessy Louis Vuitton SE: Louis Vuitton, Bulgari, Moët & Chandon
• Compagnie Financière Richemont SA: Dunhill, Cartier, Montblanc
• Kering: Gucci, Saint Laurent Paris, Bottega Veneta

For FY2014, China/Hong Kong was Richemont's largest revenue contributor, with a contribution of €2.6 billion, or about 24% of their top line.¹⁹ In FY2004, their Asia-Pacific segment only generated sales of €0.6 billion, with China/Hong Kong not even reported separately.²⁰

LVMH's store expansion in Asia painted the same picture. In 2004, LVMH had 338 stores in Asia (excluding Japan).²¹ In 2014, LVMH has expanded its store count to 870 in Asia (excluding Japan), contributing 29% towards the group's revenue.²² In the last decade, LVMH's Asia (excluding Japan) store count expanded at the fastest rate of any of its other major geographical segments. With the wave of luxury European brands coming into China, PRADA S.p.A. went even further, with an initial public offering of the company on the Hong Kong Stock Exchange (HKSE) in 2011.²³ This showed the growing importance of China both as potential customers as well as potential investors for these companies. And this was not a one-off event, given that HKSE is also home to Trinity Limited (owner of Gieves & Hawkes) and YGM Trading Limited (owner of Aquascutum), both European brands with histories of royal warrants.

The China consumer story is not just about luxury goods; in fact, that is only the tip of the iceberg. The consumer sector is a broad sector, ranging from consumer discretionary (things we want) to staple items (things we need). Think along the lines of what you eat, drink, wear and use daily. Imagine the potential of the number of people migrating from rural to urban areas: they might want to eat more meat, buy better cars, drink more bottled drinks and use more disposable baby diapers. Maybe this was why Warren Buffett's Berkshire Hathaway Inc. paid good money for consumer staple companies like H.J. Heinz Company and its subsequent merger with Kraft Foods Group.

Along these lines, we might expect The Coca-Cola Company and PepsiCo, Inc. (“PepsiCo”), given their huge global footprint, to also be the dominant beverage players in China. Interestingly, local players like Hong Kong-listed Tingyi (Cayman Islands) Holding Corporation (“Tingyi Holdings”) and Uni-President China Holdings Limited have a similar strong presence in the country. Tingyi Holdings even has a strategic alliance with PepsiCo in China and is the primary supplier of beverages to Shanghai Disneyland.²⁴ This was the first time in at least 25 years since PepsiCo last sold its beverage through Disneyland, implying the reach and influence of Tingyi Holdings.²⁵ Note: PepsiCo had expectations of China being the world's largest beverage market by 2015.²⁶

Tingyi is not just a beverage giant; they also own the Master Kong brand, which has a whopping 46% market share (2014 volume) of China's instant noodles market,²⁷ more than twice its closest competitor, Uni-President China Holdings Limited.²⁸

For sportswear, Nike Inc., with over US$30 billion in sales (2015),²⁹ had a target of sustainable double-digit revenue growth for the Greater China region.³⁰ Even within China, local sportswear players have been creating waves, with the listings of Li Ning Co Limited (“Li Ning”) (2004), Anta Sports Products Limited (2007) and Xtep International Holdings Limited (2008), all major local sports brands. These companies are already building their global brand image, with sponsorships of NBA stars like Dwyane Wade³¹ and Klay Thompson.³²

When it comes to fast food, one of the most successful foreign food company in China is Yum! Brands, Inc. – operator of KFC, Pizza Hut and Taco Bell. In the past, eating at restaurants might be reserved only for special occasions. But with the rise of the middle class and the urbanisation of China, visits to these restaurants became more of a common occurrence. In fact, sales in China contributed to over 50% of Yum!'s revenue between 2012 and 2014.³³ Given this positive demographic backdrop, one might expect good returns from investing in consumer companies. Or at least that was what was most expected. But was this really the case?

With over four times the population of the United States of America (2014) and a GDP per capita of only 20% of the United States of America, one would expect the growth in the China's consumer industry to be on fire. However, in recent years, the stock performances of many major China-based consumer-related companies served as cautionary tales for investors on the dangers of over-expectation. With China's demographic presenting such a compelling case, we are not opposed to their consumer story. Rather, what we are concerned with is investors overpaying for the ultra-optimistic future.

Even with a good growth story, fundamentals still do matter, and China's post-Beijing Olympics sportswear industry was an interesting case. Most of these sportswear brands rode on the Beijing Olympics wave to raise capital in the financial market. Up till 2008, business was booming, with some of these companies being given lofty valuations. However, investors should never make the mistake of assuming that growth of such magnitude will carry on forever. Finally, in 2011, after three years of weakening operational data, fundamentals eventually prevailed and 50% vaporisations of the market capitalisation of these sportswear companies were not an uncommon sight. In hindsight, this was a disaster waiting to happen.

Since 2008, most sportswear companies in China overestimated demand for its product. This was evident from their marked increase in inventories and trade receivables. Unfortunately for sportswear, inventory is not like wine, it does not get better with age. Many of them ended up with inventories, such as shoes, that deteriorate in quality over time.

Moreover, some of the companies operated on a wholesale business model.³⁴ They ended up stuffing inventory down to distributors and retailers, which were already filled. In good times, these distributors and retailers would not have much concern about clearing their stock. But once demand slowed, things got ugly. And when sportswear giant Adidas AG reported that they had too much product in the Chinese market,³⁵ it should have been an “uh-oh” moment for investors.

If consumers are not buying more, inventory can only flow back, causing major inventory and receivable write-downs throughout their entire value chain. Imagine yourself at a buffet where you are already extremely full. Then someone comes and feeds you more food. You can imagine the ugly scene that follows. This was what happened to the sportswear industry in China. Even a company like Li Ning, one of the more recognised sports brand in China, met with such a fate.³⁶

The simple and hard truth is that even when you are confident about your views on a certain macro trend, if you do not look into the fundamentals of the individual company, these investments may not result in the rewards you expect. This is because market prices are a combination of both the current reality as well as the future expectations. If future expectations have already been priced into the share price of a company, investors may not even benefit when the future is as expected.

More importantly, it is often a dangerous sign when most investors are betting that the fast growth rate of a company can continue its upward trajectory perpetually. During a time when the growth rate starts to slow unexpectedly, investors may realise that their past optimistic expectations have become unrealistic. As a result, we tend to see a reversion of the share price after such a realisation from over-optimistic investors. In summary: never ever overpay.

The Commodity Supercycle

From the late 1990s until the 2008 financial crisis, most commodities have enjoyed a great run. This period has been better known as the commodity supercycle and many companies within Asia have benefited from this thematic event.

During this supercycle, commodity prices were largely driven up by the rising demand from emerging markets such as the famous BRIC countries (Brazil, Russia, India and China). Commodities range from coal, iron ore and platinum to things like pork belly (yes, people do trade that), coffee beans and rice, even oil, gold and silver. For this segment, we will be focusing on basic resources and not commoditised products like generic drugs or microchips.

The commodity supercycle saw many commodities increasing in price rapidly. For example, the prices of crude oil, copper and corn have all risen by over 1,000%, 480% and 240% respectively (late 1990–2008).³⁷ Even gold had a very respectable gain of 500% since 2000, peaking at close to US$1,800/ounce in 2011.³⁸

If we look into the economic history over the past 200 years, two other notable commodity supercycles came about: from the economic growth in the USA during the late 1800s to early 1900s; and from the post-war developments in Europe and Japan in 1945–1975.³⁹ It seems like the story repeated itself in the early 2000s, fuelled by the rising demand from the urbanisation and industrialisation of the BRIC nations (Brazil, Russia, India and China).⁴⁰

Since supercycles tend to be driven by highly material-intensive economic activity, then it should come as no surprise that China was a huge contributor to the latest supercycle. China is handling possibly one of the largest rural-to-urban migrations in human history. Just imagine the amount of infrastructure spending required to accommodate this change. Try to visualise the amount of aluminium and iron required to build up a city centre. Now multiply that by a hundred or even a thousand. This was when infrastructure-linked companies like Hong Kong-listed Anhui Conch Cement Company Limited – one of China's largest cement makers – saw revenue of about RMB1 billion (2000)⁴¹ soar to RMB46 billion (2012).⁴² Beyond China, other commodity players throughout Asia, like oil palm giant Malaysia-listed Sime Darby Berhad⁴³ and Singapore-listed Wilmar International Limited,⁴⁴ have also enjoyed strong revenue growth in the early decades of the 21st century.

Food has also been experiencing a strong increase in demand as Asia progressed. With the increase in income levels and population within Asia, agricultural products were also in strong demand. Globally, agriculture products are dominated by four companies, commonly known as the ABCD: Archer Daniels Midland Company, Bunge Limited, Cargill, Inc. and Louis Dreyfus Company. Within Asia, there are a few companies that hold their own against the ABCD. Olam International Limited (“Olam”) and Wilmar International Limited (“Wilmar”) are two such companies.

From a cashew nut trader in 1989, Olam has developed into a global leader in cashew, rice and cocoa. The latter was due to its recent US$1.2 billion acquisition of ADM's cocoa business, making Olam one of the top cocoa processors in the world.⁴⁵

On the other hand, Wilmar is a very different company. Not only is Wilmar among the top oil palm plantation owners in the world by planted area, it is also the world's largest processor of palm oil, with a booming branded consumer products business in China, India and Indonesia. Wilmar also invested heavily into the oilseeds and sugar sector. Today, Wilmar is not only one of the largest oilseed crushers in China, it is also among the top 10 raw sugar producers in the world. The massive growth experienced by Wilmar can be seen from its book value. Its shareholders' equity soared from US$0.6 billion⁴⁶ to US$15 billion in just 10 years⁴⁷ (2006–2015). In 2010, Wilmar had a market capitalisation of over S$40 billion,⁴⁸ making it one of the largest companies in Singapore. Not bad for a company that came to the market only in 2006.

When we talk about commodities, how can we leave out oil and gas? Although many integrated oil and gas companies within Asia are nationalised entities like the Saudi Arabian Oil Company (Saudi Aramco) or Malaysia's Petroliam Nasional Berhad (better known as PETRONAS), some of the largest of them all are also listed firms. Dual-listed oil and gas giants such as PetroChina Company Limited, CNOOC Limited and China Petroleum & Chemical Corp (Sinopec Limited) are a few examples.

Apart from integrated oil and gas producers, there are some major service providers to the industry as well. For the Offshore and Marine industry, Singapore's duo of Keppel Corporation Limited (“Keppel”) and Sembcorp Marine Limited are two of the top oil rig builders in the world. These companies also benefited from rising demand for commodities. In 2014, Keppel was a S$16 billion conglomerate generating revenue of over S$13 billion with S$8.6 billion from their key Offshore and Marine segment with operations from rig building to offshore engineering and construction.⁴⁹

Following their lead are a whole slew of other specialised support providers, such as Ezra Holdings Limited, Ezion Holdings Limited and even the newly listed PACC Offshore Services Holdings Limited – part of Robert Kuok's empire. From just these few examples, it is clear that the commodity supercycle has kept many companies in Asia busy and very profitable in the early part of the 21st century.

The Growth of REITs

Due to its “tangible” nature, many in Asia still view property as a “safe” investment. Today, not only has this trend continued, it has also extended to the area of property-linked equities. In the last decade, the investment vehicle known as a Real Estate Investment Trust (“REIT”) has taken Asia by storm.

REITs are vehicles with professionally managed real estate assets. REITs can own a wide range of property assets such as commercial buildings, retail malls, hotels, industrial buildings, data centres and even telecommunications towers.

REITs first started in the US market during the 1960s. In the late 1960s, European REIT legislation allowed the creation of European REITs. Australia followed suit in the 1970s, making it the first nation in the Asia Pacific region to form REITs.⁵⁰ In Asia, REITs only started taking off in early 2000. Today REIT markets in Japan, Hong Kong and Singapore are quite established. Fun fact: The United States is still the largest REIT market, with assets from communication towers to billboards and even prisons!

REITs have a few advantages for investors and property owners. For one, the REIT structure allows individual investors to gain exposure to huge properties which they would not have the resource to purchase individually. It also allows existing property owners to increase the liquidity of their otherwise illiquid assets. REITs are seen as a win-win situation between issuers that want to “unlock” property values and investors who want to be a minority landlord in a mega building. REITs allow investors to have a “rental stream” and capital appreciation without fully owning the underlying property or, in simple terms, REITs are seen as investments that give investors a stable income with potential upside that their prices will go up over time.

In 2011, Asia Pacific was the world's second-largest (21% of market capitalisation) REIT market, with Australia comprising 58%, followed by Japan (20%), Singapore (14%) and Hong Kong (8%).⁵¹ The low interest rates environment during the past few years might have helped in pushing the demand for REITs in Asia. The average yield of a 5-year Singapore government bond was 1.4% in the last 10 years, lower than the 20-year average at 2.2%.⁵² But why is cheap financing important for REITs?

A REIT is designed as an income-generating instrument, and to enjoy tax transparency a REIT is required to distribute at least 90% of its taxable income to unitholders.⁵³ Therefore, REITs have funding concerns when it comes to investing in new properties or performing “asset enhancement initiatives” – either way, you need cash. Thus one key risk of REITs is the need to take on additional funding, either through equity or debt, for future development.

In 2014, Singapore-listed REITs, at S$68 billion, accounted for 6.8% of the market's total market capitalisation, the highest in the region.⁵⁴ Since the 2002 listing of CapitaLand Mall Trust (Singapore's first and largest REIT),⁵⁵ the number of listed REITs on the SGX Mainboard grew to 30.⁵⁶ This sector is such an important component in Singapore that over 20% of the Straits Times Index's constituents, such as Ascendas Real Estate Investment Trust, CapitaLand Limited, CapitaLand Mall Trust, CapitaLand Commercial Trust, City Development Limited, Keppel Corporation and Singapore Press Holdings Limited, either have investments in REITs or are involved in REIT operations.⁵⁷

Other than the traditional four of commercial, hospitality, industrial and retail REITs, 2014 welcomed the first listing of a data centre REIT – Keppel DC REIT – onto SGX. With this listing oversubscribed,⁵⁸ could this be the start of more exotic REITs in Asia? However, before getting distracted, we shall return to the main issue at hand: Why are REITs important for investors?

Common benefits include:

• Tax benefits: Individual investors enjoy a tax-exempt distribution.
• Liquidity: Able to buy and sell mega properties easily.
• Portfolio diversification: Investors can now obtain real estate exposure without huge investment outlay.
• High distribution: This leads to high-yielding equity investments.

With their unique structure and in the absence of excessive leverage, REITs can be described as a form of convertible perpetual bond. As a bond substitute, REITs could provide you with both a constant stream of income and a capital appreciation “option”. And with a rather decent performance showing in Asia in the past decade, REITs appeared to be doing well to fill up this void.

For a quick crash course on yields, we can calculate the dividend yield of an investment by the formula: “dividend per share divided by market price”. For example, if a share is trading at $20 per share and is offering $1 per share in dividend, its dividend yield would be 5% (dividend of $1 divided by the share price of $20). Moreover, due to share price movements, even if it is based on a constant dividend per share, the dividend yield fluctuates from time to time.

Going back to the previous example, if the share price of the company plunged to $10 right after your purchase, you will be enjoying a 10% yield. Sadly, that might not give you much comfort, especially when your share price was down 50%. On the other hand, if market price went up to $40 per share, your dividend yield would be down to just 2.5%; to keep things in perspective, your return on investment has now gone up 100%. Which would you prefer?

Instead of worrying about the dividend yield of a company, what we should always take note of is the sustainability of earnings and the cash flow to cover its dividends. Simply because an investment has a high yield does not mean that the yield is guaranteed. Dividend and distribution can be cut, and when they are, your yield can go to 0%. And 0% of anything is zero.

To enjoy the benefits of their structure, REITs have to pay out 90% of their taxable income. Inevitably, this has led to REITs having a much higher yield compared to the general market. This asset class might suit the portfolio of an income investor. It can also be an alternative to bond investors in regions where the retail bond market is still underdeveloped. From Figure 2.1,⁵⁹ we can clearly see how REITs (yield-wise) stack up against other traditional sources of income producing assets.

Yield-wise, REITs look to be heads above the other traditional sources of income producing assets. The only other asset class with comparable yields would be high-yield ( junk) bonds. Compared to junk bonds, REITs are generally perceived as more conservative and accessible for most yield-seeking investors. Broadly speaking, investments in most Singapore-listed REITs in the past decade have been positive for investors.⁶⁰

Although REITs are commonly thought of as income instruments, we noted that distributions contributed to about half the returns of 20 REITs over the period between 2002–2014.⁶¹ Nonetheless, with a balance between capital gains and dividends, REITs could work out for investors striving to meet both their short-term liquidity needs as well as their long-term capital gains.

For those of you who are interested in knowing more about REITs, we highly recommend Bobby Jayaraman's Building Wealth Through REITS as a good starting point to learn about Singapore-listed REITs.⁶²

Technological Charge!

China is already home to some of the largest technology companies in the world, whether in the hardware space, with companies like Huawei Technologies Co. Limited and Lenovo Group Limited, or software giants like Tencent Holdings Limited (“Tencent Holdings”), Baidu Inc. and Alibaba Group Holding Limited, which all have their roots in China. From the backwaters of the technology industry, China is now one of the fastest-growing technology centres in the world. In 2013, China's software industry reported a growth of 24.6% year on year for 2013, far exceeding the global average growth of 5.7%.⁶³

Over the past three decades, Chinese hardware companies have gone international, and many have become truly international companies, with Hong Kong-listed Lenovo Group Limited (“Lenovo Group”) as one such example. Back in 2004, Lenovo Group acquired IBM Corp's (“IBM”) Personal Computing Division (the famous ThinkPad series) for a total consideration of approximately US$1.75 billion.⁶⁴ That was one of the first few examples of a Chinese company buying a global business from an international powerhouse. What's interesting was that out of the initial portion of US$1.25 billion transaction amount (the remainder of US$500 million was net balance sheet liabilities), 48% was done in Lenovo Group's common stock. At the end of this deal, IBM had an 18.9% stake in Lenovo Group.

This was not a one-off thing. In 2015, Lenovo Group made headline news when it went back to IBM to acquire their x86 server business for US$2.3 billion.⁶⁵ The deal propelled Lenovo Group's revenue to US$46 billion in 2015.⁶⁶ Today, Lenovo Group is not only the world's largest PC company, with 21.2% market share,⁶⁷ they have also become one of the top smartphone companies in China.⁶⁸ Within the same space, we also see fast-moving and innovative companies, such as Xiaomi Corp, becoming more dominant in the industry. Even so, after decades, most Chinese technology companies still appear to operate mainly in China. Fun fact: China's Huawei Technologies is now the third-biggest smartphone maker after Apple Inc. and Samsung Electronics Co Limited (the world leader in the $400 billion market).⁶⁹

There are two possible major reasons for this situation. First, compared to developed nations, China appeared to be more resistant to foreign software companies attempting to expand within the country. And with what happened in the United States presidential election in 2016, national security might be viewed as an additional concern. A perfect case in point would be the restrictions placed on social media companies such as Facebook Inc. and Twitter in China. This close, restricted and regulated industry in China gives Chinese technology companies an advantage over their global peers when they are allowed to operate within the country. For example, Google Inc. struggled for many years in China before calling it quits in 2010.⁷⁰

Of course, this is not a phenomenon unique to China. As a response to the heavy restrictions on companies outside China, many countries, especially the United States of America, are now also resistant to opening up to Chinese technology companies hoping to invade their shores.⁷¹

Second, due to China's unique culture and language, many companies that have successful operations in China might find it hard to export their businesses overseas. Moreover, with the local industry growing at such a fast pace, many software companies have not yet seen the need to venture outside the Middle Kingdom. However, as the local industry matures, we believe that more and more of its companies will start venturing outside of their motherland. In fact, companies like Tencent Holdings and Alibaba Group Holdings Limited have been aggressively investing in companies and markets beyond China. Through Riot Games, Tencent Holdings owns the world's top eSports game, League of Legends,⁷² which generates a whopping US$1.5 billion annually. As well as holding 100% interests, Tencent Holdings also acquires stakes in certain companies, with Activision Blizzard Inc. being one of them.⁷³ In 2016, Tencent Holdings, together with their partners, made their largest ever acquisition, with the US$8.6 billion purchase of 84.3% of the “Clash of Clans” maker, Supercell Oy.⁷⁴ We might one day see a truly globalised Chinese technology company in the near future.

These are some of the key areas of change we are seeing within Asia, especially around the East Asia and Pacific region: the rising demand of the Chinese consumer; the increasing demand for commodities due to huge infrastructure projects planned within Asia; the growing importance of Asia-based technology companies and the evolution of the financial markets here, leading to more asset classes such as REITs. These are all prime examples of how fast Asia is changing. Yet after decades of change and progress, Asia is still behind the developed world. Will Asia ever catch up? Or if you dare to dream, will Asia lead the charge forward in the future in all these areas? If so, what does it mean for investors like us? We do not know what the future holds for Asia, but we know that as investors we need to get prepared by learning about the region, or risk being left behind.