Fears about China's economy can have far-reaching impacts, but the negativity doesn't mean that opportunities in Asia can't be identified, says Chris Chan, fund manager of the New Capital Asia Future Leaders Fund and co-manager of the New Capital China Equity Fund and the New Capital Emerging Markets Future Leaders Fund.

Markets notice when China has problems, but investors risk being distracted from Asia's wider opportunities if they focus too heavily on the continent's largest nation.

Global markets can feel the reverberations of a China slowdown, or even the perception of one, however, many of the region's other economies are experiencing significant positive shifts.

The likes of India, Vietnam, and Indonesia are benefitting from the so-called ‘China plus one' supply chain trend, which has involved scores of multinational firms expanding their production footprint into other Asian nations.

And the economic friction between China and the US is providing a boost to the likes of Korea, particularly in areas such as electric vehicle components.

This has created some compelling opportunities within certain segments of a number of Asian economies for those able to put China's woes to one side.

Firing on all cylinders

Our research suggests that India's economy is probably one of the strongest of any major nation in the world at present, with economic growth being revised up.

Furthermore, the breadth of the performance has seldom been witnessed in recent history, with many metrics flashing positive.

Ordinarily, if public sector spending is elevated, private capex might be weak, or the property sector might be soft, but as it stands, all areas appear robust.

One area we have focused particular attention on, though, is the industrials space, which is being supported by the aforementioned China plus one shift, as well as effective government policy.

A flurry of firms launched initial public offerings (IPOs) in India just prior to and during the pandemic, and some of those small- mid-sized firms in the industrial space have been fuelled by the structural themes that are helping to drive India's economy.

Just like China's problems can be a distraction from the opportunities in nearby countries, the fanfare of more consumer-facing listings, like Zomato's $12bn  IPO in July 2021, also overshadowed compelling names in the specialist chemicals and industrials spaces.

Essentially, digging deeper than the most eye-catching trends can often lead to opportunities being unearthed.

Delving deeper

This theme can be extended to Taiwan as well, the tech hub that soared during the pandemic as demand for technological devices rocketed.

After stock market rises in 2020 and 2021, the nation's main stock market dipped significantly in 2022, falling a fifth to 14,373 , as economies opened up and consumers began putting more emphasis on experiences rather than goods.

But certain sub-sectors of Taiwan's tech-heavy index are witnessing rapid growth thanks to the hype surrounding artificial intelligence (AI).

Regardless of any investor's conviction around AI and machine learning specifically, it would seem difficult to argue with the notion that technology will continue to improve, and for that to happen, computers will need greater numbers of increasingly sophisticated components.

While a small number of US heavyweights are garnering the most attention in relation to AI, the servers required for powerful AI applications rely on a wide spectrum of components and materials to help achieve the performance required.

Copper clad laminate, for instance, acts as an important insulator in AI servers, and the quantity of this material needed is anywhere between 3x-10x more than conventional servers.

Identifiable opportunities

Asia's economy and its consumers are experiencing the same pressures as others, and are not immune to the machinations of macroeconomic headwinds.

Over the long-term, top-down factors, such as demographics in South Asia , are likely to provide an economic boost, but in the near-term, our focus is on prioritising allocations to specific types of firms with robust market share and pricing power in particular sectors.

We also believe the opportunities are often as compelling in industrial companies as in consumer businesses

The broad global trend of heightened inflation and elevated interest rates is putting downward pressure on property and stock markets, and in turn curtailing the disposable income of households.

This makes it vitally important for investors to be selective, because even where the challenges are clear, opportunities can often be identified.

That feels true across Asia, even in China, which won't be a passive victim in its trade spat with the US, and which can lean on a huge domestic and pan-Asian consumer base to support its growth.

The world's second-largest economy might be attracting headlines for the wrong reasons right now, but dismissing it - or its neighbours - isn't something we're planning on doing.

By Chris Chan, fund manager of the New Capital Asia Future Leaders Fund and co-manager of the New Capital China Equity Fund and the New Capital Emerging Markets Future Leaders Fund.