Insights

Bond Opportunities as Asia Charts an Innovative Course

Asia’s economic fundamentals, coupled with a growing and increasingly affluent population, provide fertile territory for innovation-driven growth.

November 20, 2023 5 min read

Kheng Siang Ng, CFA, CAIA

Asia Pacific Head of Fixed Income, Head of SSGA Singapore

Given the sheer scope of Asia’s economy, we pinpoint corporate and institutional innovation in three specific areas – agriculture, energy, and digital penetration – where the region offers investors an expanding catalogue of fixed-income opportunities.

Agricultural Innovation: Boosting Production and Incomes

Agriculture is a particularly interesting area of innovation in Asia. Global food demand is expected to increase by over 50% as the world’s population could touch 10 billion by 2050.¹ In response, the use of new technologies in areas such as precision land levelling, mechanized seeding, and smart water management are becoming more common across the region. These developments can help boost production and require less labor, which, in turn, helps generate more income for farmers. And as high-speed data networks roll out across Asia, improved connectivity should also help the operators of smaller businesses adopt digital tools to boost productivity.

Meanwhile, the International Rice Research Institute (IRRI) is developing crop varieties that require less water. The IRRI is also promoting a new irrigation technique called alternate wetting and drawing, or AWD, that reduces water consumption by 20% and helps trim greenhouse gas emissions by up to 50%.² Moreover, this approach could enable farmers to produce a third rice crop each year.

Asia is Leading the Way in Hydropower and Solar Cells

At over 400 gigawatts, China has the world’s largest hydropower network– around four times more than the United States.³ India and Japan also have significant hydropower projects. Looking ahead, other Asian economies, such as Vietnam and Laos, have a suitable topography for developing future installations.⁴ Crucially, this energy source could partly reduce the region’s reliance on fossil fuels and help meet emission targets.⁵

In Southwestern China, work has begun on a new hybrid power station that uses hydropower and solar cells to generate electricity. When built, this facility will be the largest in the world of its type.⁶ Another advantage of hydropower projects is that they can help increase agricultural production by providing a more reliable water supply.

Elsewhere, China accounts for about 77% of all solar cell production, making it the world’s dominant supplier. This expertise should help the broader region and the world meet emission reduction targets. The second largest manufacturer is Vietnam, followed by Malaysia and India – further illustrating Asia’s sector dominance.⁷ Recent advances include the development of thinner cells, firstly by Japan and more recently by China, that are easier to install on a broader range of surfaces.⁸

The Region’s Cities are Becoming Smarter

The Asian technology market is marked by relatively deep digital penetration, tech-savvy users, and expanding 5G data networks.

One beneficial outcome of the COVID-19 pandemic, associated lockdowns, and supply chain disruptions is the acceleration of innovation in consumer technology across certain sectors, such as food delivery, personal services, gaming, and medical applications.⁹

The rise of smart cities in Asia that use artificial intelligence (AI) combined with multiple sensors to improve optimization between different industries also lays a solid foundation for future technological advancement.¹⁰ Smart cities can adapt in real time to various challenges, from issuing air quality alerts to easing transportation issues.

Government support for start-ups is also essential. Singapore, China, Hong Kong, India, and Japan all recognize the technology sector's importance. In China, science parks are being created where companies receive tax breaks and other financial support measures designed to foster innovation.¹¹

And amid concerns about limits on technology transfer to China, it was recently announced that a new open-source AI model had been released by a Beijing company, which, in certain aspects, can outperform those of other regions.¹²

A Fundamentally Supportive Backdrop

Asia’s technological expertise and targeted government support mean the region’s corporates are becoming global leaders rather than imitators. It’s true that innovation-driven growth may prove challenging for fixed-income markets, as economic expansion could give rise to inflation and, in turn, central bank rate increases. Yet, on balance, it would also act as a foundation for longer-term structural improvements and underpin economic resilience, supporting the fundamentals of corporate and government bond issuers.

Footnotes

Disclosure

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Diversification does not ensure a profit or guarantee against loss.

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The views expressed in this article are the views of Kheng-Siang Ng through the period ended 31 October 2023 and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

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