Welcome to Thoughts on the Market.
I'm Daniel Blake, Morgan Stanley's Asia Equity and Thematic Strategist.
And I'm Tim Chang, Morgan Stanley's Head of Asia Sustainability Research and Firmament Strategist.
Today how Asia is reshaping its development strategy, corporate governance and capital markets to lead globally.
It's Monday, October 6th at 8am in Singapore.
And it's also 8am in Hong Kong.
Asia is experiencing a number of dramatic changes that are reshaping industries, even entire economies.
De-globalization, supply chain shifts, frenetic investment in AI and looming disruption from the adoption of the technology, rapid energy transformation and the transition to super aged populations as longevity drives, investment in innovative healthcare and better nutrition are just some of the overarching themes.
Asia's transformation is a story every global investor needs to follow and look for opportunities in.
So what are the overarching themes?
When you look at Asia Pacific, for example, what are the key themes that you're seeing in terms of driving the equity return and the market trend that you're seeing?
We're approaching the Asia thematic opportunity from the framework of a competitive reinvention.
It's competitive because this is deeply rooted in the cultural and business norms across much of the region, which has had an export focus through the modernization process in Japan and, more broadly, with the emergence of the Asia tigers.
But we're seeing this competition really stepping up another notch as countries look at how they can take market share in emerging technologies and also this overarching competition between the US and China, which sits at the heart of the multipolar world theme we've been laying out in recent years.
We're also seeing a reinvention of development strategies, of corporate governance frameworks and of capital markets to try to better improve the financial supply chain, to see the capital raising, the capital allocation process improved and ultimately drive better returns for an aging population.
So Tim, you've been very focused on the corporate governance improvements that were seen in much of the region.
Take us through what you think is most compelling and most important for investors to note.
I think governance reforms is a really key theme for Asia Pacific, taking a sample in Japan.
In the past we have done some correlation analysis between the major governance factors and what are driving the return.
What we have found is that, first of all, there is a significant alpha potential from online companies with leading governance metrics and also companies that may improve their governance metrics over time.
So if we look at the independence of board of directors as an example, there is a positive correlation between the total return and also the independence in Japan market.
And overall, we are seeing a major government improvement.
As Daniel, you have mentioned China, Korea, India and Singapore and Japan as well.
All these markets together account for over 70% of the market cap in MSI Asia Pacific index.
So that's why we think the governance reform is really driving the return of Asia Pacific as a whole.
Daniel, after talking about the governance reform and capital market reform, I know multipolar wealth is also a key theme for Asia Pacific.
So what you are seeing in terms of multipolar wealth in Asia Pacific?
So the multipolar world theme has come back to the foreground in 2025 as trade tensions have risen, as dealmaking has been struck or attempted, and we've seen the concept of weaponized interdependence really being proven out in the second quarter of 2025, as China has been in recent years implementing frameworks for export controls and leveraged these quite effectively.
So economic security initiatives have come back to the focus for investors.
Over recent years, we've seen a number being set up across the region, including Japan's Economic Security Promotion Act, the Self-Reliant India Framework and South Korea's Supply Chain Stabilization Act, as well as Australia's National Reconstruction Fund.
So we see a number of investment opportunities flowing from these reforms.
Ultimately, the critical mineral and permanent magnet supply chain is very much in focus, but we're also expecting to see semi-localization, so semiconductor localization efforts are continuing to drive investment and activity.
Naturally, defense has been a key area of focus for investors in 2025.
And overall we see defense spending rising in Asia from 600 US billion in 2024 to 1 trillion in 2030.
So Tim, the energy security theme fits as part of this overall future of energy theme that you've been exploring with the team.
How do you see this intersection with the multipolar world and what are the key investment opportunities?
For the future of energy.
I think the energy story is really at the core of Asia's multipolar world positioning.
Take an example we are seeing for Southeast Asia.
The region is importing gas from the US, and then also Korea and Japan are also trying to export their nuclear technology to the Western world as well.
I think all these have a part to play in the multipolar world, but at the same time they are also crucial for these countries to meet their own energy target and strategy.
And Asia-Pacific, when we look at the future of energy, there are a few driving forces.
One is the very strong growth of renewable energy.
Take an example in India, we are seeing a huge capacity going into the renewable energy sector and solar sector as well.
China is already the biggest market in solar panels.
And then also Korea and Japan are developing their nuclear capacity as well.
And, as I have mentioned, they are also exploring to export their nuclear technology to the Western world.
So I would say these Asian countries are balancing the multipolar world priorities with their future of energy target as well.
And then there were also lots of opportunities between these dynamics.
I would highlight two examples.
One is the nuclear industry.
Renaissance thesis that we have written extensively in the past two years.
We have highlighted Japan and Korea being the key beneficiaries under this multipolar world and future of energy dynamics.
And then the other would be the gas globalization in Southeast Asia or ASEAN region, where we see opportunities in the gas distributor gas infrastructure in Southeast Asia.
And then our gas is going to be much more important when it comes to the energy security and transition agenda in Southeast Asia region.
So we are seeing lots of development in the future of energy in Asia-Pacific.
But when it comes to the other big theme, that is AI, Asia-Pacific is also a leader in a global AI race.
So Danny, what are the most notable trends that you're seeing on a national or regional level on tech division and AI in Asia-Pacific?
So the concept of competitive reinvention also is useful in understanding Asia's response to AI and technology diffusion.
So we're seeing China, in particular, looking to strengthen its position in the development phase of new technologies.
And we're also seeing, on the export competition front, more incentives to compete for the next phase of supply chain diversification.
We're also seeing the emerging class of China MNCs that are sitting at the heart of our China Emerging Frontiers research.
And another key area of discussion and research for us is understanding China's unique AI path, where we're seeing more of a focus on policymakers and corporates playing to strengths in terms of power, data and talent, given the shortages of compute and, at the same time, wanting to pursue a localization strategy over the medium term.
On the technology front.
We think the India stack is also still underappreciated as a digital enabler of opportunities in the new India.
And then, more broadly, we are looking for companies that we see in Asia that will prove to be AI adoption leaders.
So this underpins really another key work stream for us in identifying opportunities from AI and tech diffusion into the region.
So Tim, how about when we turn to the theme of longevity?
What are the key investment opportunities you see in Asia-Pacific?
First of all, let's look at China.
So China is entering a super aged society.
And by 2030, China's elderly population will hit 260 million.
So that is a big number, which accounts for 18% of the population.
And Japan as well, and Korea as well, Korea is already entering the super-age society.
And then there have been reform program on health care, financial system, pension and labor market in order to support these aging population.
And for Japan, the focus is really on not just living longer, but also living more healthy.
Taking a sample.
We have done some reports on the healthy food industry in Japan and how different companies are providing affordable, healthy food to consumers.
And we think that will create opportunities for investors if they would like to look into longevity as a theme.
Overall, we are seeing new market in healthcare, pharmaceutical and affordable healthy food, as well as the reform in the wealth management and pension system that will create opportunities in the financial market as well.
And the longevity economy, or the silver economy, is becoming a big theme for Asia-Pacific for a long time to come.
Tim, thanks for taking the time to talk.
Yeah, great speaking with you, Daniel.
And thanks for listening.
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