Emerging sectors can give lift to portfolios
Dramatic changes in Asian consumer and services markets have been a long-term forecast.
All sorts of analysts from mega-trend wizards to investment bank macro-gurus have written about this imminent tidal wave of change.
Real tangible evidence of the growing importance of intra-Asian business and the growth of regional consumerism along with the emergence of services as key economic drivers have come in the shape of small-cap research at Crosby Securities.
This monitor is split in two parts. The first will look at Crosby's findings and what they say about Asia's economic landscape. The second will consider what investors should do. Using small and mid-cap data from around the region, Crosby says it has identified five key macro trends.
Increasing Asian consumerism is a clear trend as disposable income of consumers rise along with real income and savings. This is powering profits at companies that have successfully tapped Asia's young, image-and lifestyle-conscious shoppers.
Asians are moving over to credit in a big way. Asian society is more credit oriented. This is powering a revolution in retail banking and financial services.
The Asia business village has been created with companies trading with each other across the region for products and services.
There is an explosion in demand for soft infrastructure covering services in telecommunications, banking, administration, technology and management support. The significance of soft infrastructure to Asian economies is set to be every bit as important as hard infrastructure - roads, rail, power and ports.
There is a marked segregation of manufacturing duties between countries. There is a two-tier manufacturing structure in Asia.
High-technology is handled by South Korea, Taiwan and Singapore.
While low tech is the province of Hong Kong, Indonesia, the Philippines, India, Thailand and Vietnam.
The identification of these trends is not necessarily new.
But what is good about the Crosby research is that they can show you concrete evidence of companies in these sectors that are riding on the back of these changes.
For the investor there are some even more interesting findings.
After stripping out the non-performing low-tech industrial manufacturing sector, Crosby found a universe of service and consumer sector stocks that are less volatile than their blue-chip big daddies but that offer bigger returns.
Their correlation with the blue chips is, in relative terms, low.
Fund managers need to look at these emerging sectors from two points of view.
In the first place they are part of the future in Asia.
In the second place, they can complement a universe of core blue-chip holdings by offsetting some of the volatility of the bigger stocks while they enhance the overall return of the portfolio.