The UK is set to become a marginal player in the global growth story, according to Schroders’ Matthew Dobbs – however, he said this has little to do with Brexit, with the rest of Europe likely to suffer the same fate
.
Instead, the veteran manager of the Schroder Asia Pacific and Oriental Income trusts blamed the UK’s diminishing status on its inability to keep up with “the single most important factor in global growth, global politics, global geopolitics and almost everything” – Asia.
Dobbs (pictured) said that as a stockpicker, he is probably more excited about Asia than he has ever been – although he admitted saying exactly the same thing a year ago, just before the market fell 10 per cent.
“I am glad I said this at the time – this is not a prediction about the stock market, this is just a comment about what I do, which is just pick stocks,” he explained.
“Because I think that some of the innovations, some of the genuine ground-breaking business models and the ways of approaching things in Asia are actually leading the world. And are certainly on a par with what Silicon Valley is doing.”
Intellectual property (IP) theft was cited as one of the motivations behind the ‘trade war’ between the US and China and Dobbs said that he has some sympathy with Donald Trump over this issue.
However, he said that the battle has already been lost: even if the threat of tariffs did prevent further IP theft, the momentum has already swung in Asia’s favour, with a surge in the number of patents filed and the focus switching from derivative products to original research.
He added that higher engagement rates in Asia are acting as a catalyst for new technology, pointing to Tencent – regarded as the Chinese version of Facebook – as an example.
“Tencent’s WeChat has well over 1 billion users and actually the engagement is in some ways awesomely depressing,” he said.
“Over 30 per cent of the people who are daily users of WeChat are on it for more than four hours a day. I have a son who I complain about if he is on a computer game for more than half an hour. But my colleagues use WeChat for everything. Just the power of that in terms of advertising social media is unparalleled really.
“I think [Facebook chief] Mark Zuckerberg has his problems with the high engagement that people have with [Facebook] now. But that really pales into insignificance.”
He added that this engagement with technology is not limited to China either. For example, he pointed out there are 120 million regular online shoppers in India – although with 560 million internet users, there is still plenty of room for further growth.
And it is a similar story in Indonesia, with a population of more than 250 million, where he is confident he has found the next major disruptor.
“I don’t know if you have ever been to Jakarta, but if you have, you will instantly be struck by how everything has gone green. And one of the reasons it has gone green is Go-Jek, which was originally a ride-hailing service: Uber Indonesian-style.
“But Uber Indonesian-style doesn’t involve four wheels. It involves mopeds. So, if you were travelling on your moped and you were going on your usual commute, why not take a pillion? You can do it all online, you might get paid about 10p for the privilege, but it is 10p you wouldn’t otherwise have had. It goes a long way in Indonesia.
“And that now has developed into an e-wallet which can make commercial transactions. You can order a massage in the office over Go-Jek. It was valued in the last funding round at about $9.5bn which isn’t bad for an Indonesian company. It is happening all over.”
The manager said there are three main reasons why the rates of technological engagement – and as a result, disruption – are much higher in Asia than in the West. First is a generation of “really savvy entrepreneurs”; second is a younger demographic who are not set in their ways and so are open to new ideas; and the third is the lower quality of existing competition.
The manager said this last point, while often overlooked, may be the most important.
“Some of the retailers in the US used to be seen as the great global retailers,” he continued. “When I first came into the industry, all the retail managers from Marks & Spencer and so on were going to the US to see how the Americans were doing things.
“But you can see that even the great names of US retail have been brought to their knees by that disruption, so think about how much easier it is if you are up against the 53rd best department store somewhere in downtown Harbin or wherever this is.
Source: Schroders
“You would much rather order your food or your foreign exchange at your desk online rather than queue up for two hours in some Chinese postal savings bank and have to fill in about 15 forms.”
One of the few remaining edges held by the West is that its more established companies in areas such as engineering tend to be more closely associated with quality than their Asian counterparts.
However, Dobbs warned that technological advances mean this is another area where Asia is closing the gap and western companies who rely on their history may ultimately find it is their undoing.
“I think it is a real challenge for all the complacent boardrooms in Zurich or in Frankfurt who are looking at their best quality products and saying, ‘we can certainly build a better lift or make a better piece of capital equipment than the Chinese can’. Well, yes, maybe that is the case, but that may change quite dramatically,” he finished.
Data from FE Analytics shows Schroder Asia Pacific has made 503.6 per cent since launch in 1995 compared with 520.44 per cent from its average IT Asia Pacific ex Japan peer.
Performance of trust vs sector since launch
Source: FE Analytics
The trust is trading at a discount of 9.95 per cent to net asset value (NAV) compared with 10.82 and 11.38 per cent from its one- and three-year averages.
It has ongoing charges of 0.94 per cent, is yielding 2.07 per cent and has gearing of just 2 per cent.