Shroff, who heads the Matthews Pacific Tiger Fund, understands that Asia is not immune to ripples from the actions taken by central banks, which could reverse the current good fortunes of economies in the region.
He said: “Asia Pacific has benefited from greater availability of capital than was available ten years ago so now the small to medium enterprises can hope for better access to capital. But should that dynamic reverse course, that could impede the progress of companies across Asia.”
However, he believes “the cost of inaction,” failing to implement structural reforms quickly enough or at all is the biggest potential setback to the realising the region’s investment potential.
“If you take a step back and look across the region, there are variety of structural initiatives that are being undertaken by policy makers across Asia,” Shroff said.
“In Japan and Korea, the administration is trying to incentivise companies to adopt more proactive shareholder policies, whether it is higher dividends or focusing on better structuring of company boards. There’s an all-around effort to improve the governance mechanisms for corporations.”
Similarly, India’s goods and services tax, which was implemented to help create a common market across the entire region, has opened up the possibility of better scale and efficiency, as well as a slight pick-up for growth and GDP, according to Shroff.
However, Shroff says the region still desperately needs to address a host of structural reforms around labour laws and land acquisition provisions.
“When you come onto China,” said Shroff. “The focus there is largely on supply-side initiatives. I can’t say it has all been a linear progression toward success. There are times when there is some progress made and then you go into a holding pattern for a few months and then you get a burst of activity. That’s the reality of all of these. It does take many years to unfold.”
Despite Shroff’s admission that China’s path toward reform had been anything but straight and steady, he sees more investment opportunities here currently than elsewhere in the region. He is particularly optimistic about healthcare and consumer goods companies over a five-year perspective given China’s greater awareness around healthcare concerns and the growth of household wealth.
Shroff also thinks that there are opportunities that will arise in Chinese financial companies in five to ten years’ time, specifically with insurance companies and China’s growing financial advisory industry.
He added: “When you look at the totality of these different initiatives being undertaken in the region, you probably walk away feeling there is probably still a fairly hectic pace of positive change when it comes to the structure of the underlying economy, which is more than can be said for many other economies around the world right now.”
