Are we still ‘misunderestimating’ Asia?

President George Bush (the second one) made some idiosyncratic contributions to the language, including his complaint that people “misunderestimated” him.¹

I’m an Asia strategies portfolio manager, so I’m biased, but I feel the same about the region to our North – we “misunderestimate” Asia. For investors, that can be a mistake. Over the past decade Asia has been the motor of the world economy, generating 70% of global GDP growth. Platinum’s Asia Fund has returned 12% pa. since inception in 2003 (as at end March 2025).

Yet underestimating Asia has a long history.

Made (cheaply) in Hong Kong

In the 1950 and 60s, Hong Kong businesses used cheap labour to become a low-cost manufacturer of clothes and toys. The label ‘Made in Hong Kong’, was shorthand for cheap goods. Yet by the time Hong Kong was handed back to the Chinese it had achieved an economic miracle.

In 1960, the average per capita income in Hong Kong was 28 percent of its colonial owner, Great Britain. By 1996 average incomes in Hong Kong were 37% higher than in Britain, thanks to laissez faire policies and an entrepreneurial culture that helped Hong Kong ride the long tide of globalisation.²

By 1997, Hong Kong, with just six million people, was the world’s busiest container port, with the world’s seventh largest stockmarket.³

Rice burners and Japanese junk

In the 1950s Japan was producing low cost consumer goods, cheap motorcycles and under-powered cars labelled ‘rice burners’. Take a time machine forward to 2025 and the six most reliable car brands in the US are Japanese.^{4, 5}

Japan’s firms patented a whole new approach to industrial management – they were fanatical about quality, hired selectively, partnered with suppliers, obsessed about process improvement and overinvested in engineering.

Today Japan is known for the quality of its consumer goods. It’s a world leader in cars, design, fashion - and factory automation. Our Platinum Japan Fund holds a number of companies who are leaders in robotics and machine vision - companies like FANUC, Keyence and Daifuku.

The Middling Kingdom?

While China’s rise has been the great economic story of the past few decades, it has also been repeatedly underestimated. It too was typecast as a low-wage manufacturer. Yet Chinese manufacturing labour costs rose 800% between the early 2000s and the 2020s and the country is still the world’s dominant manufacturer.⁶

For some years critics argued China could dominate lightweight industrial production but never really master the material sciences. There were sneering comments about Chinese firms being unable to produce the quality of steel and precise engineering needed even to make ballpoint pens. Yet China today is the dominant producer of electric vehicles, batteries, high-speed rail stock and solar panels.

As Chinese manufacturing got more sophisticated, sceptics switched to argue that China would never master the internet – until Alibaba came along.

Others argued they would never become a leader in AI – then DeepSeek shocked the world earlier this year by delivering a Chat-GPT equivalent at what looks like a discount in price and computing power.

In the human sciences, China’s share of global biopharma companies tripled between 2017 and 2024.⁷ Betting against Chinese adaptability is a poor bet.

"Poverty is not socialism. To be rich is glorious." Deng Xiaoping.

The lessons of the past

So why have Asian economies, markets and business been serially underestimated?  Here’s my personal view.

• The accelerator effect. There comes a point in a country’s economic development where their smartest people can shift from working in development – transport, food, housing and energy – and have the infrastructure and incentives to create businesses. That shift occurred decades ago in Japan, Hong Kong and Singapore. We’re seeing its peak today in Taiwan, South Korea and China. Indonesia, India and Vietnam are in the take-off phase.  
• Static thinking. As humans and investors we assume what we see will stay static, yet dramatic change can be happening beneath the surface. It was easy to believe Toyota would keep building small cars for their sizeable home market. Much more difficult to predict they would reshape industrial management and become the world’s biggest car company. Hence it’s important to systemise the analysis of what’s changing about a business to see whether that change makes it a buy.
• Confusing macro with micro. Both Japan and China have had long booms and deep slumps over the past 30 years. Despite these macro swings they’ve built global success stories – Toyota, Sony and Keyence in Japan. Tencent, Alibaba and BYD in China.
• Shoulders of giants. There’s some truth to the saying: “America innovates, Asia imitates, Europe regulates.” But it’s not the full truth. Globalisation, the internet and big data mean it’s easy for companies anywhere to copy (learn from) their competitors.  Today information, capital and brains are light-speed mobile. Asia has turned that to its advantage.

A patchwork of reform

So what does the future hold for our neighbours to the North?

There are business-friendly reforms kicking in across the region, albeit at different speeds and levels.

In Korea and Japan there is a greater focus on shareholder returns and better corporate governance. The progress can be halting – but there is progress.

India’s pro-growth policies mean GDP is growing at over 7% a year and its consumer economy is developing rapidly.  India is way behind Western standards on corporate governance but some people there are thinking very deeply about the shape of future growth. Raghuram Rajan, the former Governor of India’s Reserve Bank wrote recently that India needed to move from fetishising manufacturing towards delivering “high-skill services for the export market and moderate skilled services for its huge domestic market.” ⁸

A large middle class that buys things off each other

Today Asia is the world’s largest trading bloc and intra-regional trade is growing rapidly. Its rapidly expanding middle-class is both a huge market and a supplier of capital to Asian businesses.

Extraordinary businesses

Right across Asia we’re finding extraordinary businesses to invest in. Taiwan’s TSMC is a chip foundry essential to all the great technology names carving out the future of AI. It’s generated a return of 24% a year for ten years (Source: Factset, local currency, to end March, 2025). 

I’ve dubbed Pakuwon Jati, ‘Indonesia’s Westfield’. It’s debt free, well-managed and exposed to the growing Indonesia consumer. Yet it’s valued at around eight times earnings, despite owning land worth as much as its market capitalisation, so you’re effectively getting the business for free. With holdings like Bilibili and Kuashiou we’re giving Platinum investors exposure to the massive potential of online entertainment in China. Between them these companies have around one billion users.  

The upside of underestimation

For Platinum clients the ongoing underestimation of Asia can be a good thing. As value-oriented investment managers we’re seeking assets priced more cheaply than they’re worth. The serial discounting of Asia’s prospects means we found companies like Tencent, the Chinese technology giant we have owned since July 2012 and which has delivered a total return over 740% over that time (Source: Factset, local currency, to end March 2025). We’re still finding those opportunities.

Asia also offers multiple layers of diversification.

Asia economies run the board on development. South Korea and Taiwan are advanced first world economies. Parts of the Chinese seaboard are as sophisticated as any country in the world. All three of these countries have large high-tech sectors that help future proof their economies.

By contrast, India, Indonesia, Bangladesh and Vietnam are still emerging. The path of their economic future is less clear and their markets likely to be more volatile. Yet they have the potential to grow much more quickly – and to throw up exceptional long-term opportunities. To take one proven example, our Indian airline holding, InterGlobe Aviation, has returned over 18% a year – for fifteen years. (Source: Factset, local currency to end March 2025).

An invaluable difference

For Australian investors, diversifying into Asian companies also diversifies where their returns come from.  

• In Australia, financial stocks (banks, insurers, property trusts) make up nearly half the market.
• Resource companies (Rio, BHP, Fortescue etc) account for another 22% of the MSCI Australia Index.⁹

Investing in Australian shares means you’re heavily invested in only two sectors. Invest in Emerging Asia and around 70% of your money goes into tech, healthcare, industrials and consumer-oriented businesses.¹⁰ For an Australian, an allocation to Asia is a natural counterweight to our over-concentrated home market.¹¹   

My argument in this article is that it’s a mistake to underestimate Asia – its growth potential, its adaptability, the returns available from its markets.

Thirty years ago, it might have been forgivable. Today, when Asia is 60% of the global population and 70% of global GDP, when GDP per capita is growing much faster than in any other region,‘misunderestimating’ Asia is not only unwise, it could be bad for your wealth.¹¹

• Like to know more about the Platinum approach to investing in Asia or about how we invest in Japan?
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