PERSPECTIVE3-5 min to read

Why emerging markets could be the next digital frontier



Ben Forster
Portfolio Manager, Global Listed Real Assets

The Covid-19 pandemic has accelerated the adoption of a number of trends enabled by the internet, such as e-commerce, on-demand video streaming and online gaming. This has increased the need to transfer, store and process data within digital infrastructure assets – something that we expect to continue as these trends continue to accelerate.

As investors in real assets in leading global cities, we believe that data centres and other essential digital infrastructure such as cell towers and fibre optic cable, present a compelling opportunity.

While mature digital hubs are already highly developed, there are still plenty of opportunities to invest in what we call the “digital frontier”, which we believe will increasingly be found in emerging markets.

Seeking the next digital frontier

In 2018, we singled out China as an exciting emerging market for digital infrastructure and demand for data centre space in the country has subsequently rocketed.

Identifying the next digital frontier requires examining multiple factors. In its simplest form, the anticipated growth of a location’s GDP and its underlying digital services output is a strong indicator of potential success. GDP itself is driven by factors such as population growth, age profile and productivity levels.

Indonesia and Malaysia could benefit from Singapore’s saturation

Singapore has now become so saturated with digital infrastructure that the government has placed a moratorium on new data centre development, given the sector’s draw on power. This presents opportunities for neighbouring Indonesia and Malaysia, which benefit from significant population growth, accelerating internet penetration and new sub-sea cable landings.

In 2019, Indonesia had a population that was roughly 50 times that of Singapore, yet it only hosted around one-eighth of the data centre capacity. On this basis, its capital Jakarta looks well placed to capitalise, with local firms actively looking to raise development finance.

Similarly, Chinese data centre operator GDS just announced a large campus development in Johor Bahru, Malaysia, just 25 km north of Singapore. They received strong support from Malaysia’s Digital Investment Office which highlighted the country’s aspiration to become a digital economy hub, upskilling the local workforce and creating new jobs.

For those more comfortable with developed nations, Perth in Western Australia is becoming a connectivity hub thanks to its new sub-sea links with Singapore, Sydney, Jakarta and Oman.

Networking to get ahead

As cloud-based digital empires push the digital frontier into new territories, businesses are looking to secure the digital shipping lanes required to rapidly transit data to video streamers, multi-national enterprises and online gamers globally. When they land on the beaches these cables will need data centre capacity, cell towers and overland fibre to reach their end customers.

We are focusing on identifying the local incumbents that have already secured these major trading posts and we strongly believe that there are plenty of digital frontier opportunities left to invest in.

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Ben Forster
Portfolio Manager, Global Listed Real Assets


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