Asia Pacific offers growing bounty for global portfolios

Billions of US dollars in global capital are expected to flow into India and South Korea from late 2025 onwards after FTSE Russell revealed that government bonds from both countries would be included in its indices – the FTSE World Government Bond Index for South Korea as of November next year, and the FTSE Emerging Markets Government Bond Index for India from September.

The significance of this announcement cannot be underestimated. Following FTSE Russell’s decision, for example, Sang-mok Choi, Korea’s deputy prime minister and Minister of Finance, praised efforts to strengthen the local capital markets, saying a smooth index inclusion “will bring a welcomed increase in international investment in our capital markets”.¹

For India, meanwhile, FTSE Russell’s decision reinforces the growing importance of the country’s government bond market in mainstream global emerging markets fixed income portfolios.

Already since June 2024, it has been part of JPMorgan's Government Bond Index-Emerging Markets index – with Reuters reporting foreign inflows of nearly US$18.5 billion since September 2023 when the intended inclusion was announced.² In addition, Indian government securities will be available on Bloomberg Index Services' Emerging Market Local Currency indices as of January 2025.

For investors with global portfolios, the diversity and return potential that bigger allocations to Indian and South Korean bonds can offer is just the tip of the iceberg when looking at Apac as a whole.

Apac’s growing appeal

Key features of the region’s markets are shaping investment opportunities that should persist over the coming decades.

Perhaps most notably, many Apac economies are growing faster than those in the developed world, powered by an expanding consumer base. Further, the region is generally less dependent on exports for growth and has more manageable debt levels than many parts of the West.

Reflecting the diversity of Apac’s investment landscape, equity sectors in each market offer diversification relative both to the US and from each other, with higher concentrations in financials, consumer discretionary sectors, manufacturing and commodities. At the same time, fixed income sectors offer attractive income sources, based on duration and yield advantages relative to other regions.

As a result, asset allocators can look to Apac assets across equities and fixed income as sources of improved risk and/or reward potential relative to an index of broad global equity and bond exposure.

However, the dispersion of investment characteristics across the wide variety of Apac markets means investors need to carefully consider which assets can best achieve the desired portfolio effect. With this in mind, active strategies are well-placed to give portfolios the required tools to target highly specific regional opportunities.

Three markets to watch

Geographically, Australia, India and China are key economies offering promising prospects for investors:

• Australia – a leader in renewable energy, with an ambitious target of achieving net-zero emissions by 2050 and a commitment to invest in green hydrogen, solar, wind and battery technologies. The country also has a strong innovation ecosystem, supported by robust research and development, skilled talent and advanced infrastructure.
   
• India – driving digital connectivity, in turn enabling financial inclusion, fostering digital entrepreneurship and enhancing public service delivery, to create opportunities in e-commerce, fintech, health tech, edtech, artificial intelligence (AI) and cloud computing sectors. India’s large and young population, plus growing middle class and urbanisation rate, also offers a huge consumer market and human capital for the future.
   
• China – a global powerhouse in digital innovation, with a vibrant digital ecosystem across e-commerce, social media, gaming, AI, cloud computing and 5G. The country has also invested heavily in building smart cities. Further, China is a major player in renewables, with the world’s largest installed capacity of wind and solar power, plus is dominant in the electric vehicle and battery markets.

Tapping transformative trends

Looking longer term, demographic, social and technological trends are likely to reshape Apac over the next two decades.

In particular, burgeoning digital connectivity, rapid urbanisation, demographic shifts and the energy transition each underscore the region’s investment potential as it adapts and evolves:

• Connectivity – as the largest and fastest-growing market for digital technologies, Apac is leading the charge. By 2025, 5G penetration is expected to soar from 3% to 24%, with 6G promising speeds up to 100 times faster by the 2030s.³
   
• Urbanisation – more than half of the world’s megacities are in Apac, each with over 10 million people,⁴ and by 2040, the urban population is projected to grow by 600 million.⁵ Annual investment into infrastructure to meet demand for roads, bridges, railways, airports and smart cities will be a multi-billion-dollar opportunity.
   
• Baby-bust economies – by 2050, one in four people will be over the age of 60, equivalent to China’s population today,⁶ yet as ageing societies shift towards consumption, labour shortages will drive innovation in sectors like healthcare, education and technology. On the other hand, large, youthful populations in countries like India, Indonesia, Pakistan and the Philippines create a vast, dynamic workforce, driving economic growth and innovation, and requiring infrastructure such as schools, hospitals and transportation networks.
   
• Energy transition – Apac is home to five out of the 10 largest emitters globally,⁷ with the region producing half of the world’s greenhouse gas emissions.⁸ As a result, Apac’s energy transition journey and required renewables investment will undertake a bold leap toward a diversified energy mix, improved efficiency and enhanced security, driven by technological advances, policy support, market dynamics and social awareness.

Such a shifting landscape inevitably brings with it challenges as well as opportunities for investors. To navigate these, portfolios need to adopt a long-term perspective, a flexible approach and a deep understanding of the local contexts and needs.

Click here to read more insights in the research paper: Tapping the Bounty of Asia Pacific Markets.

_{Sources
1 - Source: LSEG, October 2024. https://www.lseg.com/en/media-centre/press-releases/ftse-russell/2024/ftse-russell-country-classification-september-2024
2 - Source: Reuters, October 2024. https://www.reuters.com/markets/rates-bonds/india-south-korea-bonds-join-ftse-russell-government-indexes-2025-2024-10-08/
3 - Source: “Digital societies in Asia Pacific: Progressing towards digital nations.” GSMA. 2022.
4 - Source: “Foreign Direct Investment and policies in the health sector in Asia and the Pacific 2022/2023.” Economic and Social Commission for Asia and the Pacific. September 22, 2022.
5 - Source: United Nations Department of Economic and Social Affairs (UN DESA), as of July 2022. Analysis by Franklin Templeton Institute.
6 - Source: ESCAP calculations based on United Nations, Department of Economic and Social Affairs (2022). World Population Prospects 2022, Online Edition.
7 - Source: World Economic Forum. "How Can We Accelerate the Green Energy Transition in the Asia-Pacific Region?" World Economic Forum. January 2023.
8 - Ibid.}
 

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