Scott Kingsley, Senior Wealth Advisor
The underlying strength of the APAC economy is well documented; expected to go from strength to strength in the short, medium and long term. Recent events suggest that the technology sector will be one of the main drivers, with the region set to become THE global technology hub. We will now look at the foundations of this trend and the implications for investors.
We know that the makeup of the APAC workforce is changing. An older generation is now making way for a younger workforce, seemingly more mobile and tech-savvy. While this evolving demographic is fuelling the ongoing fire of growth, it is essential to appreciate the solid foundations under the surface.
A recent report by AWS and Gallup highlighted the considerable contribution the digital workforce is making to the APAC economy. Figures show that the combined GDP contribution of digital workers amounted to $4.7 trillion in 2022 alone. Recent surveys also show a growing appetite for digital skills and openness to work with new technology and adapt to the future employment landscape.
There were some interesting stand-alone figures from the survey:
On a more positive note, the number of non-digital workers is much lower across the following countries:-
While this illustrates the strength of Australia, Singapore and New Zealand, it also demonstrates the vast potential of countries such as India. This potential may be closer than we think, with the same survey highlighting an appetite for development in India, with the average worker looking to pursue 22 of 26 listed digital skills.
As the APAC technology sector continues to grow, there is enhanced demand for skilled digital workers, set against a relatively small (but growing) skills pool. Consequently, there is a substantial income premium for basic, intermediate and those with advanced digital skills compared to non-digital workers:
The figures also suggest enhanced job satisfaction for those with advanced digital skills, with 79% reporting high job satisfaction, compared to “just” 46% for those with basic digital skills. Interestingly, the survey seems to have identified a link between job satisfaction and digital skills - are we looking at the shape of the future employment market?
London Tech Week, which took place between the 10th and 14th of June, attracted massive interest from technology investors from the APAC region. Investors representing funds in excess of £100 billion met with a range of UK technology companies to discuss potential funding. While all technology-based, the investment opportunities on offer included:-
Such has been the demand for investment opportunities across the UK that several deals were agreed before the start of London Tech Week. Many believe this is the beginning of another phase in the development of the UK/APAC relationship. It is no coincidence that renewed demand for UK technology assets has come only weeks after the UK was formally accepted into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The UK technology market has come in for some criticism in recent months. Losing the refloat of tech giant ARM to New York was a bitter blow, prompting the UK government, London stock exchange and regulators to come together. There is now a visible plan to reduce the regulatory burden and enhance the UK's attraction for domestic and overseas technology companies.
Interestingly, amid London Tech Week, we learned that tech start-ups from Japan and New Zealand are looking to rebase their headquarters in the UK. This, together with the enhanced appetite for UK technology companies from APAC investors, bodes well for the future.
Those who follow the investment markets across the APAC region will be well aware of developments concerning crypto assets. While the UK and the US have taken a relatively aggressive approach to regulations, Hong Kong, Singapore, Japan and South Korea have been more welcoming.
It would be naïve to portray the more welcoming regulatory environment of the APAC region as soft touch; it is more of a structured approach. This visible regulatory framework has prompted many crypto market participants to relocate to the Far East. Coinciding with a slump in crypto trading volumes in the US and Europe and an increase in Asia, this perfectly reflects the ongoing changes.
While initially, crypto was popular with "more adventurous" investors, it has now taken on a broader appeal. Much of the switch in volumes from the US and Europe to the Far East is underpinned by institutional activity. As mentioned above, this also reflects the less risky regulatory framework compared to elsewhere.
Ironically, at this moment in time, crypto trading is banned in China, with India introducing draconian taxes, which make trading unviable for many. We should eventually see a relaxing of regulations in these countries which cumulatively account for more than 50% of the Asian population. If the region is fast becoming the leading global crypto hub, this position can only be strengthened by the long-term integration of China and India.
While US regulators continue legal action against some crypto exchange operators in the US, institutional investors have their eye on the elusive spot Bitcoin ETF market. BlackRock and ARK Investment Management are now the front-runners in the Bitcoin ETF market, awaiting formal approval from the US regulator.
Interestingly, the amended application by ARK Investment Management includes a surveillance sharing agreement with the Chicago Board Options Exchange and an as yet unnamed crypto exchange. Is it fair to assume this surveillance agreement could help to avoid some of the potential regulatory challenges?
For the last few years, regulators across the APAC region have been targeting the crypto market while governments have sought to enhance the digital skills of their workforces. As for technology investment, this has always been one of the central planks of the APAC region’s investment mindset. Recent comments suggest that progress is being made on all three fronts, creating exciting investment opportunities for investors.
Even though rising global interest rates and inflation have impacted the APAC technology market, it has been more resilient than many had expected. That said, it is vital to take a cautious approach to diversification, introducing a mix of growth, income and balanced investments to complement your investment goals and attitude to risk.
We know that the APAC economy is strong, leading the global economy in terms of GDP and future growth expectations. Under the surface, several factors influence this expected long-term growth, including the technology sector, a workforce hungry to enhance their digital skills and a more balanced regulatory approach to new markets such as crypto assets.
The relative strength of the APAC technology sector in what have been challenging economic conditions continues to attract the interest of investors. However, it is essential to consider diversification when looking at your investment portfolio and broader finances.
If you'd like to discuss this article in more detail or perhaps re-evaluate your current/future investment strategy, get in touch today.