Investment in infrastructure key to long term growth in Asia

The majority of government stimulus packages across Asia are aimed at infrastructure development that will contribute to the rapid rise of the consumer and middle classes and further strengthen the long term outlook for Asian equities, Fidelity International said today.

Catherine Yeung, Associate Director, Asia Pacific ex-Japan equities at Fidelity comments: "Asia hasn't been shielded from the problems in the wider global economy. Exports have been a key driver of growth in the Asia Pacific region over the past five years, averaging around 80% of GDP in a number of markets. As such, it was not surprising to see the region slightly impacted by the collapse of OECD consumption, which began to take hold last year. The fall in exports is expected to continue in the near-term and unemployment across the region has dampened some growth prospects, but over the longer term, the region's fundamentals remain strong.

"Chinese retail sales (in real terms) increased by 15.9% in the first quarter - that is over 3.6 percentage points higher than at the same time last year. The Chinese consumer is also in a better position versus its US or UK peers given there isn't any credit card or home equity debt. Elsewhere in the region, Hong Kong has seen property transactions up year to date versus expectations and India reported stronger than expected first quarter GDP growth of 5.8% year on year.

"Towards the end of last year though, the collapse in exports and fears of falling domestic demand resulted in governments across the region announcing unprecedented stimulus packages amounting to around 11% of regional GDP (or approximately USD 870 billion) - a figure exceeding the USD 787 billion stimulus package that was passed through US Congress.

"China's broad based and much discussed stimulus package of 4 trillion RMB (USD 585 billion) accounts for 70% of the announced plans in the region - triple the combined expenditure of the next three biggest spenders; Korea (USD 71 billion), India (USD 68 billion) and Malaysia (USD 18 billion).

"The composition of these growth packages is also significant: approximately 60% has been directed at infrastructure spending. And because this infrastructure development is very much a necessity in the region, it means that the situation is very different to that in Japan in the 1990s.

"For example, China and India's road density is similar to the US but only half of the total road network in these two countries is paved; electricity consumption per capita in China is 16% of US consumption and in India it's only 4%; and only 21% of Taiwan's households are connected to sewerage systems.

"Overall, Asia's long-term structural story remains intact and investment opportunities remain attractive, concludes Catherine Yeung. The Asian governments and the Asian consumer are in relatively good position, currently offsetting the lack of contribution from exports over the mid-term.

"The infrastructure developments are an encouraging step forward. It is thought that some 3.8 billion people could benefit from planned urbanisation whether it is better transport links or the creation of new jobs. In return, the region will see the rise of the consumer and growth of the middle class.

"Although global momentum has slowed over the past year, in absolute terms, Asia still offers a very attractive investment opportunity as money is ploughed into rebuilding and rejuvenating the region. For investors, Asia offers solid growth versus almost any other region globally."