Innovative companies are reshaping Asia's investment landscape, as older industries recede and newer business models take their place. Investing with a long-term view, Portfolio Manager Michael Oh seeks to understand what the market for innovative growth companies may look like in the next five to 10 years. In this Q&A, we sit down with Michael and discuss his approach to capturing the growth of Asia.

What impact are innovative companies having on the composition of equity benchmarks?

When I look at today's benchmarks tracking international markets, they seem to be trapped in this old EAFE (Europe, Australasia and the Far East) or developed market framework. Most benchmarks reflect where the world has been, not necessarily where the world is going. In my view, two important economies are essential for investors right now. The first, of course, is the U.S. The second is China and, more broadly speaking, the Asia ex-Japan region. An investor's U.S. portfolio will naturally cover the U.S. market. Investors then need to consider their international portfolio, which I believe needs to include a healthy allocation to China to give you the right picture of today's world. When I look at the benchmarks tracking international markets, China is not at the center. Many investors seem to have a big hole in their asset allocation models, which is Asia ex-Japan equities.

When investing in China and other parts of Asia ex-Japan, what is the role of active security selection?

China is a good example of how innovation is generating opportunities in Asia through creative destruction. China has fully embraced the digital age, with retailers going straight to e-commerce, skipping over brick-and-mortar in many cases. China's merchants have already embraced digital currency. You no longer need physical money in China; all you need is your smart phone. When placing orders in a restaurant, paper menus are not provided—you just order straight from your phone. China is also fully embracing financial technology and a broad range of online services as well. Against this backdrop, innovative companies still only reflect very tiny part of the MSCI China Index, which is still dominated by big banks, big offline financial institutions and industrial companies. When we look at the MSCI China Index today, I can envision that roughly a third of the current index constituents may become obsolete in the future. To capture China's digital transformation, I believe security selection is key.