Emma Wall: Hello, and welcome to Morningstar. I am Emma Wall and here with me today to give his three themes for growth for Asia is Robert Horrocks, CIO of Matthews Asia.
Hi, Robert.
Robert Horrocks: Hi.
Wall: So what's the first theme you'd like to talk about?
Horrocks: I'd like to talk about government and the reason why government is interesting in Asia at the moment is, the style of government is very different from what you're seeing in the rest of the world. We have the U.S. obsessed with its election at the moment, but government which is talking more about distribution or redistribution of wealth.
You have similar themes emerging in Europe, overlaid with this desire to keep this construct that is the European Union together and struggling with that.
Whereas in Asia governments are far more focused on reform, that is reform of the legal systems, reform of market institutions, supply side reform, encouraging more efficiencies, growing productivity and more involved with growing the pie rather than finding different ways to slice the pie out.
That's important, that provides a good background of nominal growth in the economy within which businesses can operate, grow profitability and I think that's behind a lot of the optimism when you look at growth in Asia over the long term. So that it can continue to outpace the West and the rest of the world by about 3, 4 percentage points a year.
Wall: And what's the second theme for growth?
Horrocks: Second theme for growth is the consumer, because within that overall picture of fast growth the one area that where people's lives are going to be changed dramatically is the emergence of the middle class lifestyle. In Asia you're going from people who in some countries not long ago the per capital GDP was measured in terms of the number of calories that you consume, these were subsistence type lifestyle.
And you're going into a period where people spend not just to survive, not just on the basic necessities, but to express something about themselves, their individuality, sharing love, affection.
This is a great environment for businesses, because you're selling the intangibles. You're not just selling the item itself, but the brand around it. And I remember going into Chinese supermarkets. For example, 10 year ago, there was just piled high of products and you'd be scooping around these piles of products to find what you wanted to buy and it was just buying on cost. Well, now you go into these supermarkets, each product is individually stacked on the shelves, the brand faces you, the consumer buys in terms of quality and familiarity...
Wall: Aspiration.
Horrocks: Aspiration expresses something about yourself and that means better margins for business, better moats around the business and better investment opportunity.
Wall: And what's the third theme?
Horrocks: The third theme is corporate governance. Because we can get very caught up in the headline growth in this part of the world and these various themes, but ultimately you have to remember you are not investing in a region, you are not investing in a country, you are not investing in a sector, you are investing in a business and the people who run that business. Do they care about you as a minority shareholder?
So, what is important is looking at how those people make decisions, how they are incentivised and will you share in the cash flows from the business the same way that the founders and the management do?
So, one of the ways we do that is look through the lens of the dividends and dividend growth. Because you know if the company is paying you a dividend, it tells you two things that they can pay it and they'd like you enough to share the cash of the business with you. So, focusing on corporate governance, focusing on returns means that those growth elements that we spoke about is a tailwind for a decent investment.
Wall: Robert, thank you very much.
Horrocks: You're welcome.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
