Technology is rapidly changing, disrupting business cycles.
Technology is a big business over the world and Asia is not left behind. The technology action increasingly shifts to the Asian sub-continent, where the digital revolution is making a positive change within a wide range of industries which includes retail, banking, and manufacturing.
Asia of late has become the center point of new technologies with Tencent and Alibaba becoming household names. Currently, over 65% of the overall emerging markets in Asia are constituted by the technology and financial industrials which make up more than the index and are less exposed to volatile commodity price movements in prices of commodities compared to emerging market prices.
As corporate governance environment in the Asian market is still in its rudimentary stage, in day-to-day operations businesses often are adapted to practices that have a direct impact on the reporting of financial results and analysing the corruption risks.
Before an investor invests, they must assess several qualitative and quantitative assessments to minimize risks and ensure they get maximize returns in the Asian Markets:
Cyber Criminal Threat
Last year, a study predicted the region’s internet economy would reach $200 billion by 2025.
As more individuals get connected to the internet, the rise of cybersecurity threats is on a high. The cyber threats have become more complex which requires greater efforts from numerous stakeholders in a bid to tackle them. Various reports published by leading research publications have pointed to south-east Asian countries like Indonesia, Malaysia, and Vietnam becoming Global hotspots for malicious web activities. This means that hackers are increasingly making the use of insecure, vulnerable infrastructure in these countries to launch cyberattacks.
Cyber-attacks can be very expensive for enterprises. Companies must spend a fortune to fix the problem, besides, pay heed responding to regulatory fines and addressing lawsuits.
In addition to monetary and legal losses, data security breach leads to significant loss of trust as well. This loss of trust has a direct implication on market capitalization, on average, businesses lose about 10- 35 percent of their market cap by data breaches.
Cybersecurity risk is another grave risk for all investors to conquer, its implications cut cross domains from utilities to financials. Cybersecurity risk has become entangled with economic competitiveness, leadership in advanced technologies and national security concerns. The roll-out of 5G holds more promises, but investors need to pay more attention to the potential impacts of geopolitical tensions.
Regulatory and Political Risk
The change in governments, political unrest must be assessed before the big Asian Tech investment. The continuing investment and tax regulations, trade wars, etc. put additional pressure on transactions that need to be assessed for positive factors like population growth, penetration of high technology and availability of resources. Fears over trade protectionism are understandably weighing heavily on investors’ minds after the US decided to block Chinese telecom company Huawei from the US soil. The Asian tech sector is well integrated with global supply chains, making technology companies particularly vulnerable to rising trade protectionism.
The break-down between US-China trade negotiations does not sound well for global trade. Here, we may have to accept that trade uncertainty may cast a long shadow over markets than originally hoped. Long-term investors, however, can afford to ignore these short-term headline risks and focus on the longer-term growth prospects offered by the sector, albeit that they must accept that this may not materialise.
Newer regulations on newer technologies like fintech, ride-hailing, digital tokens and payments have led to critical changes to the outlook on value creation
Summing up, Asia has become a powerhouse of global growth.
Demographics and digitalisation are fuelling a booming economy that’s expected to continue for decades to come. This dynamic and complex environment of the Asian region brings volatile challenges and untapped opportunities.
As the Asian region opens to disruptive technologies, an active allocation to Asian equities offers valuable potential to seek resilient, risk-adjusted returns and harness the growth opportunities, as an exciting Asian story unfolds.
Are you thrilled as we are to see the Asian markets become the next Tech Superpower?