Why Trade War Noise Is Costing Investors Billions

It is no secret that the growth of the middle class in Asia has been a major investment theme in recent years, spurring growth for several Asia funds seeking to invest in the region. For instance, the Templeton Dragon Fund (TDF) has seen aggressive growth over its long history—but outflows have plagued it and several other funds with Asia exposure, in large part due to trade war fears. Is this an overblown concern, or is the Asian middle class consumer no longer a viable investment thesis?

A reasonable question, considering the outflow trends across Asia-focused funds, particularly ones with heavy East Asia exposure. The Morgan Stanley China A Share Fund (CAF) has seen 13.9% of its assets under management turn into outflows in the last five years, yet at the same time it’s risen at a 13.9% annualized rate over that same period. A clear disconnect between fundamentals and investor expectations has been a consistent theme among Asian investors for a long time.

To understand the future of Asia growth, look to what global companies are doing in Asia. If you do that, it doesn’t take very long to realize that the Asian middle class consumer is still a solid bet for future returns.

Take, for instance, Skyscanner. As a travel search engine in operation for over 15 years, the platform has grown to service over 1200 partners with 90 million MAUs. And China has been a direct source of growth for the company for a long time.

For instance, booking volume on Skyscanner rose 57% year-over-year in 2018 for Cathay Pacific, the Hong Kong-based carrier, via Skyscanner’s Direct Booking platform that allows travellers to research, choose and immediately book without leaving the platform. Skyscanner has spent considerable time and energy improving its mobile platform for Asia users to drive such growth, and the company sees its Cathay Pacific results as clear proof that the right investment can still kickstart intense growth in China and in Asia.