1. Newsroom
  2. Asian Equities: Pokémon, G20 Meetings, and Augmented Reality
Insight 03.08.2016

Asian Equities: Pokémon, G20 Meetings, and Augmented Reality

Asian Equities: Pokémon, G20 Meetings, and Augmented Reality

Popularity is generally difficult to predict, let alone understand. In 2015, no one would have foreseen how popular chasing the pocket monsters of Pokemon across major cities would become.

The crux of the game Pokémon is fairly simple: stronger monsters win. Such was also the diktat from central bankers and world leaders a year earlier: stronger economies do better. Conversely, weaker economies (those saddled with elevated debt) needed a push for fiscal austerity to bolster public accounts. About 12 months later amid a backdrop of still anemic world expansion, it appears that austerity is no longer trendy, and that fiscal expansion is a better anodyne for the current environment.

Before Brexit, there was Grexit. Last year, markets fretted that without a bailout from the International Monetary Fund and the European Central Bank, Greece would have to abandon the euro currency and return to the drachma. After a Greek referendum failed, an agreement was reached and crisis averted. But the message for struggling countries was that they could not continue spending more than they earned. By the fall of that year, the US economy seemed confident it could handle interest rate normalisation and world growth prospects became optimistic. However, as growth began to ebb, major political parties utilised the slowdown as indicative of failed policies. Frustration begets populism, and by the summer of 2016, the United Kingdom voted to leave the European Union.

During the Chengdu G20 meeting in July, the first major gathering following Brexit, global leaders met amid lingering challenges over protectionism rhetoric. They repeated pledges from earlier meetings, but appeared to have greater acceptance towards expanding fiscal measures as part of using "all policy tools" in order to generate "inclusive growth."

Though echoed by central banks' earlier warnings about the ineffectiveness of ultra-loose monetary policies, fiscal contribution adds incrementally to global growth, in our view. Similar to excessively loose monetary policies, effectiveness wanes as real rates move close or below zero because debt profiles remain high. The same concept would apply to liberal fiscal policies, as public spending would only increase credit and expose economic vulnerabilities.

But expansionary fiscal policies would likely do better in economies where debt is not only low, but supported by healthy balance of payments. These characteristics are more evident in Emerging Asian economies, particularly Asean and India, which are also less vulnerable in a slowdown in global trade due to higher growth contribution from domestic markets. Asean's and India's investment to GDP ratio of 29 per cent and 33 per cent, respectively, are lower relative to that of Emerging Asia of 38 per cent. While the G7's investment spending is only 20 per cent of the total economy, gross general government debt is 120 per cent of GDP, compared to Emerging Asia's 48 per cent.

Markets may not only provide premiums to economies where expansionary fiscal measures are more effective, but may prolong those premiums if the availability of capital is funded less with debt and more from net trade gains that generates a healthy balance of payments. Thus, having a current account surplus matters as Emerging Asia's positive current account balance provides funding source, while the G7's negative account would either rely on debt or weaken the currency. Emerging Asia is also a beneficiary of positive real rates, which places less depreciating pressure on the currency to build a trade advantage.

The idea of raising debt may become more popular as world economic growth remains below trend following the global financial crisis. At this juncture, structural reforms have become less popular as they do little to spur near term growth. However, we believe that a pickup in fiscal spending would be more effective in Emerging Asia, where infrastructure spending and public investments have not only commenced but followed periods where local governments have improved the investment landscape by reforming tax laws and fostering greater foreign competition. Without structural reform and political will, believing that expansionary fiscal policies alone can fix the current economic environment only works in augmented reality.  


Christopher Chu
Assistant Fund Manager - Asia


Disclaimer - pure financial information (i.e. without any mention of our products)

This document is a marketing document and reflects the opinion of Union Bancaire Privée, UBP SA, (therafter UBP) as of the date of issue. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it directed to any person or entity to which it would be unlawful to direct such a document. This document has not been produced by UBP’s financial analysts and is not to be considered as financial research. Reasonable efforts have been made to ensure that the content of this document is based on information and data obtained from reliable sources. However, UBP has not verified the information in this document and does not guarantee its accuracy or completeness. UBP accepts no liability whatsoever and makes no representation, warranty or undertaking, express or implied, for any information, projections or any of the opinions contained herein or for any errors, omissions or mistatements. The information contained herein is subject to change without prior notice. UBP gives no undertaking to update this document or to correct any inaccuracies it it which may become apparent. Past performance is no guarantee for current or future returns and an investor may consequently get back less than he/she invested. This is a marketing document and is intended for informational and/or marketing purposes only. It should not be construed as advice or any form of recommendation to purchase or sell any security. It does not replace a prospectus or any other legal documents that can be obtained free of charge from the registered office of a fund or from UBP. The opinions herein do not take into account individual investors’ circumstances, objectives, or needs. Each investor must make his/her own independent decision regarding any securities or financial instruments mentioned herein and should independently determine the merits or suitability of any investment. Investors are invited to read carefully the risk warnings and the regulations set out in the prospectus or other legal documents and are advised to seek professional advice from their financial, legal and tax advisors. The investments mentioned herein may be subject to risks that are difficult to quantify and to integrate into the valuation of investments. Generally speaking, products with a high degree of risk, such as derivatives, structured products, or alternative/non-traditional investments (hedge funds, private equity, real estate funds, etc.) are suitable only for sophisticated investors who are capable of understanding and assuming the risks involved. Upon request, UBP is available to provide more information to clients on risks associated with specific investments. The document neither constitutes an offer nor a solicitation to buy, subscribe for or sell any currency, product or financial instrument, make any investment, or participate in any particular trading strategy. This document is confidential and is intended only for the use of the person to whom it was delivered. This document may not be reproduced (in whole or in part) or delivered to any other person without the prior written approval of UBP. Telephone calls to the telephone number stated in this presentation are recorded. When calling this number, UBP will assume that you consent to this recording. UBP is authorised and regulated in Switzerland by the Swiss Financial Market Supervisory Authority and is authorised in the United Kingdom by the Prudential Regulation Authority. UBP is subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority.


Global equities

Invest in companies with superior and sustainable value creation.

Further reading

Insight 11.07.2024

UBP House View - July 2024

Equity markets rallied during the first half of the year, driven by earnings growth, a macro backdrop that was more resilient than expected, and continued appetite for AI winners (the “Magnificent 7”). Looking ahead, we anticipate a broadening of equity markets’ leadership. Read more about our insights in the July edition of UBP’s House View.

Insight 10.07.2024

Finnish ex-premier addresses UBP clients

Our annual flagship conference “UBP Looks at Geopolitics” at the prestigious Widder Hotel in Zurich recently brought together nearly 130 clients, prospects, and UBP employees for an evening of dynamic dialogue. The anticipation was palpable as Adrian Künzi introduced the high-profile keynote speaker, Sanna Marin.
Insight 09.07.2024

New White Paper covers shareholder voting on remuneration

Research confirms that companies that do not embed sustainability targets into executive remuneration strategies struggle to motivate executives to adopt sustainable practices, leading to misalignment with societal expectations and stakeholder interests.