Frank Schwarz (MainFirst ) | Any investor approaching the subject of ETFs cannot ignore the MSCI World index. It is not only because of its high profile that this index makes its way into many portfolios seeking broad diversification. But how much diversification does the MSCI World really offer? Presented as a globally distributed investment with some 1,600 companies, around 65% of its weight is accounted for by the US, followed by Europe with around 30%. The rest, obviously small, replicates Asian companies. However, the global balance of power has shifted significantly in recent years.
A study by Global Fortune reveals that a total of 203 of the 500 companies with the highest turnover are based in Asia. China and Japan alone account for 188 of these companies. Considering the speed of innovation in Asia, ignoring the continent would be a serious mistake. Over the past eight years, the average MSCI World company has grown its revenues by only 4% per year. The major developed economies included in the index, led by the United States, should face a decade of slower growth. In contrast, we see that countries such as South Korea and China are investing heavily in research and development to successfully challenge the Western world’s claim to leadership, as has already been evident in recent years.
This is why, in order to benefit from the trends in the technology sector over the next 10 years, the Asian continent cannot be ignored in asset allocation. It is therefore logical that we at MainFirst have recently launched the MainFirst Megatrends Asia fund, with an initial investment volume of almost $90 million, to offer our investors unrestricted access to this growing market.
We see here the Silicon Valley of the future, at least in part. At the same time, the speed with which new business models are advancing in Asia, promoted by the state, continues to increase. For example, China overtook the U.S. in terms of research and development spending in 2020 and by 2025 the People’s Republic is already expected to invest around $900 billion annually here. The biggest opportunities in Asia are concentrated in core technology areas such as semiconductors, electric vehicles, artificial intelligence, robotics and automation. The technology epicenters are the countries of South Korea, Japan, China and Taiwan. The impact of economic progress and growing prosperity will inevitably be reflected in consumer goods markets. Although it cannot be ruled out that European brand groups will also benefit from the Asian dynamic, the Chinese government is increasingly focusing on promoting local brand manufacturers.
