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Thinking Systematically in the Face of Volatility: A Perspective from Asia

Power of Ideas
Thinking Systematically in the Face of Volatility: A Perspective from Asia

Amid heightening macro volatility and geopolitical tensions, the past 18 months have seemed to signal that we may be about to enter a shift in eras. War, sanctions, disrupted supply chains, and blocs have all become part of our everyday vocabulary.

Against this backdrop, those of us actively planning for various scenarios in the Asia-Pacific region must ask: How can we be strategic over the long term and tactical with the everyday, when the long term is unpredictable, and the day-to-day is hugely fluid? The key, in my view, is to think systematically—that is, to analyze not only the individual trends and markets comprising the region but also how they interact with each other within a broader system.

We should recognize that the Asia-Pacific region sits in the middle of many global macro fault lines.

Three Macro Trends

To understand the key forces acting on the Asia-Pacific region today, we should recognize that it sits in the middle of many global macro fault lines, with three particularly notable trends emerging.

  1. Larger markets, such as Japan and China, are pursuing dual strategies. They’re deepening domestic capabilities and building stronger domestic economies while “ring-fencing” risk and engaging more selectively overseas.

  2. Regulatory policies are evolving quickly. Governments are instituting many new policies to reinforce national security (e.g., chips and data privacy) and are trying to keep up with fast-changing technologies (e.g., artificial intelligence and deep tech).

  3. Financial hubs are vying for position. Hong Kong, Shanghai, Tokyo, Singapore, and Mumbai are all vying to redefine themselves, and the outcome of this process will have implications for global firms operating in Asia regarding where they should locate key capabilities.

Implications

From a systematic perspective, the interplay among these trends has important implications for asset managers and others operating in the region. Among these, I would highlight the following.

1. Risks are everywhere, not just in China or in Asia.

Given the sheer volume of daily headlines and social media discussions, it’s easy to become overwhelmed with narratives, overestimating certain risks and underestimating others. For this reason, it is crucial to be systematic and scientific in our analyses—whether pertaining to business decisions or investments. In a world where “big data” has become somewhat of a cliché, a better approach is to collect as many insights as one can and then triangulate as programmatically as possible to get to a real and clear understanding of risks. Increasingly, mere access to data is no longer a competitive advantage, though the ability to process and interpret it can be.

2. Firms must take an increasingly global-local approach.

The world is clearly becoming less globalized and more regional- and domestic-focused. China has shared the idea of dual circulation (prioritizing domestic consumption), while the US and Europe have spoken about “de-risking” or, most recently, “friend-shoring,” in global supply chains. As a result, firms are going to have to be a lot more global-local in their approaches. Having more deeply entrenched and localized capabilities will be critical as the largest markets in the region—China, Japan, Korea, Taiwan, and Indonesia—all focus even more on building their domestic economies.

Still, building a global perspective and expertise will remain crucial as firms contemplate long-term strategies. Adapting to a global-local paradigm will not be easy. A new model will likely have to replace firms’ long-preferred strategy in the region of deploying teams to key hubs in Asia with a more globally directed execution.

3. The wide variety of hubs in Asia can help diversify risks.

As we enter an era of rising uncertainty, the need for firms to diversify and look for uncorrelated risk exposure in the region is clear. As I’ve written previously, Asia has recently seen key hubs, such as Hong Kong, Tokyo, Shanghai, and Singapore, building unique competitive approaches, presenting global firms with opportunities to diversify in a meaningful way.

4. There are more reasons than ever for engagement.

The operating system of the world appears to be changing, and Asia is positioned at the front and center of these shifts. Amid such widespread and rapid changes, the best way to understand the region is to analyze it as systematically as possible. Those of us operating in it need to be ever more proactive in collecting nuanced insights and engaging with regional partners from a variety of perspectives. Doing so makes facing the region’s—and the globe’s—many macro tensions challenging but also very exciting. For those who take a systematic, scientific, and unbiased approach to solving Asia-Pacific’s many interlocking puzzles, the opportunities remain plentiful.