Dear Clients and Colleagues:
While vaccine development and the uncertainty surrounding the United States (US) election have dominated headlines, another notable event occurred recently – a new trade agreement was reached this month. It was not widely broadcasted but we believe it will have profound impact on global economics and politics.
On November 15, fifteen Asian countries formed the world’s largest trading bloc, covering nearly one third of the global economy, called the Regional Comprehensive Economic Partnership (RCEP). The partnership is viewed as an extension of China’s influence in the region.
Why is the RCEP significant?
What will the RCEP do?
You may remember the rival pact called Trans-Pacific Partnership (TPP) that excluded China. TPP became less significant after Trump withdrew the US from it shortly after taking office. So far, President-elect Joe Biden has made little comment on the RCEP or if he will reconsider the US’s entry into the TPP.
Although the ratification of the RCEP by all member countries may take time, we believe it was a breakthrough in strengthening the economic integration among a diverse group of Asian countries, big and small, rich and poor.
Asia is the fastest growing economic region and the largest continental economy by both Nominal GDP and purchasing power parity (PPP) in the world. Let’s pause here and look at some UN data.
Asia’s revival began with Japan’s postwar economic surge and was further driven by the rise of China and India. Today, smaller countries like Indonesia, Vietnam and the Philippines are also among the fastest-growing economies in the world.
Throughout the coronavirus pandemic, Asia’s control measures have been relatively effective. The number of new cases have been rising over the past few days, but they remain relatively low in comparison to others. China, Hong Kong and Singapore have less than 100 cases/day, South Korea has about 350 cases/day, and Japan has 2,200 cases/day.
Asia is a very important market for our investments at Global Alpha. It carries about 45% of the weight in the international small cap strategy, and 25% in the global small cap strategy. Our largest holding is a Hong Kong listed company called Kerry Logistics, a leading third-party logistics service provider in Asia.
Here is why we have high conviction:
Have a great week ahead.
The Global Alpha Team
Sub-Advisor to the Ninepoint International Small Cap Fund
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