Emerging Asia is solidifying its place in the global technology landscape where the region has evolved
from copycat to pioneer. Long led by Silicon Valley, the future of innovation is gradually shifting to areas of
the world previously viewed as a hub for low-cost manufacturing or assembly. Emerging Asian countries,
such as China, South Korea and India, are investing billions of dollars to position themselves as key
innovators in the future of technology.
- Despite recent geopolitical turmoil, the fundamental
backdrop of innovation and investment by emerging
Asia may lead to potential long-term opportunities.
- Emerging Asian countries are investing, in some cases,
upwards of $1 trillion to establish their presence as
leaders in global technology.
- Mobile payments, artificial intelligence and automation
and robotics are key areas we believe present growing
investment opportunities in emerging Asia.
Shifting the technology landscape
The emerging Asia region is innovating rapidly. Many
countries are unburdened by older technologies and are
able to leapfrog decades of innovation to adopt and pour
capital into the most innovative technologies. Chinese
technology leaders Tencent, JD.com, Baidu and Alibaba
have backed 41% of all unicorns (start-ups worth more
than $1 billion) in Asia.1
Regional governments also are heavily investing in
innovation. In 2017, China spent 2.1% of its gross
domestic product (GDP) on research and development
(R&D); that number in absolute terms has quadrupled in
the past 10 years.2 Much of that growth is driven by the
“Made in China 2025” plan, which outlines a 10-year goal
of making innovation a key growth driver of its economy.
As part of the strategy, it intends to invest $750 billion in
three areas — artificial intelligence (AI), semiconductors
The structural backdrop of innovation and investment
by emerging Asia may be leading to attractive, long-term
potential opportunities. Three areas we believe present
the most opportunity from advancements in emerging
Asia include: 1) mobile payments, 2) AI and 3)
automation and robotics.
Emerging Asia possesses a distinct advantage over western
countries in the adoption and usage of certain technology,
most notably mobile payments. At the end of 2017, China’s
mobile payment user base grew to more than 525 million,
an increase of roughly 60 million, with a utilization rate of
70%.3 In terms of volume, in 2017 China had $15.4 trillion
of payment transactions via third-party Chinese mobile
platforms. That is up from $1.90 trillion in 2015, and is 40
times the dollar volume processed by the U.S.4
At the forefront are Alibaba (Alipay) and Tencent (QQ Wallet).
Alipay has more than 520 million global users transacting
with its mobile wallet, while QQ Wallet has 652 million
monthly active users. The pace of mobile payments is likely
to increase in the foreseeable future as businesses adapt to
consumers’ expectations of being able to pay for anything
with a mobile wallet. This trend may further be engrained by
the 50% of the world's Millennials who live in the region. As
a generation born into the digital age, it is a segment of users
that welcomes and rapidly adopts leading edge technology.
Mobile payment growth in China
Transactions handled by nonbank institutions (in Trillions)
China's mobile payment user base
Number of people using mobile payments (in Millions)
Emerging Asia is making inroads in areas of technology in
which no country has an edge. For instance, AI has been
around for many years but remains a nascent industry with
significant growth potential in many industries. The AI
market is forecast to reach $70 billion globally by 2020,
making it one of the fastest-growing markets in the world.5 In
2017, 48% of global equity funding of AI start-ups originated
in China, which is in addition to the $250 billion the Chinese
government intends to invest in AI as part of its Made in
China 2025 initiative.6 With emerging Asia, notably China, at
the forefront of AI development, the region stands to generate
many potential investment opportunities.
China ahead of the U.S. in global AI funding
U.S. vs. China total equity funding for AI startups in 2017
Source: "In AI, China> US," CB Insights.
We believe industries most likely to benefit from this trend
include cloud computing and semiconductors. At its core, AI is
entirely dependent on data in order to enhance learning, which
means the more data that is generated, the more advanced
the AI technology will become. The massive amounts of data
generated from emerging Asia’s connected user base also is
likely to enhance the need for cloud infrastructure providers
and memory chips.
Automation and robotics
While often used interchangeably with AI, automation is
focused on technology that can conduct a repetitive task,
whereas AI is focused on machine learning. Automation
is an area in which emerging Asia is clearly on the leading
edge as the region uses two-thirds of the world’s industrial
robots.7 Despite that figure, some countries with the highest
percentage of work activities susceptible to automation are
found in emerging Asia.
The trend of automation is beginning to spread as companies
look to relocate elements of their global supply chains.
Consequently, many are turning to automation equipment
to address increasing labor issues or shortages. We believe
the trend in automation can present opportunities for many
component suppliers found in emerging Asia, including
providers of robotics, lasers and semiconductors.
|What percent of work activities could be automated?
Percentage of work activities that could be automated by adapting current technology
Source: Harvard Business Review
Sources: ¹,⁶ CB Insights, ² OECD (2018), Gross domestic spending on R&D, ³ eMarketer, "The Mobile Payments Series: China." ⁴ iResearch, WSJ, " China Tech Giants’ Costly Wars to Go Cashless." ⁵PwC, "Bot.Me:
A revolutionary partnership." ⁷ IMF, "Asia's Digital Revolution."⁸ Harvard Business Review, "The Countries Most (and Least) Likely to be Affected by Automation."
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performance of any investment product. The opinions are subject to change at any time based on market and other current conditions, and no forecasts can be guaranteed. This commentary is being provided as a
general source of information and is not intended as a recommendation to purchase, sell, or hold any specific security or to engage in any investment strategy. Investment decisions should always be made based on
an investor’s specific objectives, financial needs, risk tolerance and time horizon.
Investment return and principal value will fluctuate, and it is possible to lose money by investing. International investing involves additional risks, including currency fluctuations, political or economic conditions affecting the foreign country, and differences in accounting standards and foreign regulations. These risks are magnified in emerging markets.