7 structural themes that could boost long-term transformation in Asia

Can Asian countries adopt all these?

According to BNP Paribas, when one thinks of Asia over the long term some themes become apparent at the outset. Some of these themes have played out in the developed part of Asia, though the potential for further upside looks significant in the beneficiary sectors.

Here are the 7 structural themes:

1 Rising discretionary consumption: As the Asian population gets more affluent, the focus of consumption is likely to shift away from basic necessities to discretionary items (lifestyle products, automobiles, leisure travel). Auto companies, alcohol/spirits/tobacco companies, jewellers, travel agents and airlines (particularly those who don't over-invest) could be the biggest beneficiaries.

2 Ageing population and increasing healthcare costs: Apart from some pockets (notably India and Indonesia), Asia is ageing rapidly. Increased healthcare expenses could be a boost for hospital chains and pharmaceutical companies.

The latter, particularly those in lifestyle drugs, could benefit doubly because of increasing affluence of the population. Hospital chains could benefit because of "healthcare tourism" – patients from western developed countries coming to Asian countries for surgery and other treatment at a fraction of the developed market cost. This is already prevalent In India and Thailand.

3 Alternate channels to facilitate consumption: Buying habits are changing fast. Customers are gravitating to modern retail (large malls) and to online shopping from mom-and-pop shops.

One has to tread carefully because this sector is prone to excessive competition and some stocks look over-valued.

4 Infrastructure creation and renewal: Emerging economies, particularly Asia, are by and large Infrastructure deficient, apart from some regions such as coastal China.

Large countries such as India and Indonesia are yet to urbanize in a meaningful way. Engineering and construction companies and building materials should be the prime beneficiaries of the likely infrastructure construction boom.

5 The financiers of investments and consumption: Obviously, the banks and financial institutions would be the mediators between the savers and the investors. We have to search for banks that have no major asset quality issues.

6 Cleaning up the environment: Renewable and alternative energy is likely to become a focus area for many Asian economies. Although this is likely to play out over the very long term – possibly a decade – initial signs are visible (in China, for instance). Cleaning up the environment is one of the focus areas of the new Chinese government.

7 Declining labor supply to drive increasing automation: A corollary to an ageing population is declining labor supply. This has been happening in the developed North Asian economies and has started happening in China.

Only India and Indonesia are likely to have increasing labor supply over the next 20-25 years. It stands to reason that the manufacturers of Asia will have to move away from labor intensive manufacturing facilities to more automated ones.