Asia is currently at the forefront of three transformative megatrends—artificial intelligence (AI), the energy transition, and shifting supply chains—that are reshaping the global economy. These trends are not only driving change but also creating significant investment opportunities in the region. Portfolio managers at Fidelity International recently gathered in Shenzhen, China, to delve into these themes and explore how they are catalyzing investment ideas in Asia.
The Energy Transition: A New Era for Industrial Growth
The global push towards clean energy has exposed the inadequacies of existing energy grids, which have been stretched thin by surging demand. This situation presents a unique opportunity for certain Asian industrial groups, especially in China, which are well-positioned to fill the supply gap.
Monica Li, Director of Research for Chinese equities, highlighted that the mismatch between supply and demand has created a “perfect set-up” for companies with existing capacity and power equipment. With U.S. demand siphoning supply from the rest of the world, Chinese industrials are stepping up to export to Southeast Asia, Europe, and Africa. This shift is also benefiting large industrial groups in Japan and Korea, which are seeing renewed interest from investors as demand for their products increases.
Dale Nicholls, an equities portfolio manager based in Hong Kong, notes that investment in these sectors could take several years to fully materialize, as energy grids are complex and time-consuming to build. However, with AI and renewable energy demand expected to remain strong, the outlook for these industrials is promising.
Artificial Intelligence: The Commercialization Edge in China
AI is rapidly transforming industries across the globe, and the focus is now on whether big tech companies can justify their high valuations by capitalizing on AI. According to Taosha Wang, a multi-asset portfolio manager in Hong Kong, the key for investors is to identify companies that can effectively commercialize AI technologies.
Chinese tech companies have a strong track record in this regard, consistently demonstrating their ability to translate technological advancements into commercially viable applications. This commercialization edge could significantly boost productivity and GDP in China, particularly in its manufacturing sector. In contrast, the impact on India’s traditional IT jobs, which may be at risk of automation, remains uncertain. Meanwhile, tech-hardware manufacturing bases in Taiwan and Korea are already reaping the benefits of AI demand.
Shifting Supply Chains: Adaptation and Industry Consolidation
The trend of companies diversifying their production bases outside of China, known as the “China plus one” strategy, is more nuanced than it appears. While it may seem detrimental to Chinese companies, larger and more competent firms have been able to adapt and even lead the charge in establishing new production bases abroad.
Madeleine Kuang, an equities portfolio manager based in Singapore, observed that these larger companies have successfully pivoted to meet the challenges posed by shifting supply chains. However, smaller companies with fewer resources have struggled, leading to industry consolidation. Despite the geopolitical risks associated with this trend, Monica Li emphasized that the fundamental competitiveness of companies will ultimately drive long-term success, beyond the immediate impact of tariffs and other geopolitical factors.
Conclusion
Asia’s role in these three megatrends—AI, energy transition, and shifting supply chains—highlights the region’s growing importance in the global economy. As these trends continue to evolve, they are likely to unlock new investment opportunities across various sectors. Investors who can navigate these changes and identify the companies best positioned to thrive will be well-placed to capitalize on Asia’s bright future.
