Go east, young investor: Strategist explains the continued shift to Asia

'Reflation trade has deflated'

Got a minute? Great. Get out of your chair, jump up and down, drop your pen or pencil. You've felt it: Gravity. Think back to your school days and recall the elegant equation you were taught: g=9.8 m/s2.

Gravity is something Michael Power thinks about a lot. He's a strategist at Investec Asset Management, which manages $115 billion on behalf of third party clients. His advice on where to park some of that money can be summed up in four words: Go east, young investor.

"The center of economic gravity continues to move away from the West to the East," he told CNBC's "Street Signs."

Power said the financial services industry will look very different a decade from now.

"I think it's going to refocus on moving away from indexes, which reflect the past — and that past is very Western-centric — towards a future [that] captures Asia to a far greater degree."

Perhaps, just like gravity, that makes sense to many: Billions of dollars have been flowing into Asia and, in particular, emerging markets in the region over the last year. Year-to-date, the MSCI Emerging Markets Index is up 11.96 percent and the MSCI Asia Ex-Japan Index has climbed 13.03 percent. Compare that to the MSCI All Country World Index, which is up 6.03 percent.

"I think we're going to see continued outperformance of the emerging markets," Richard Ross, head of technical analysis at Evercore ISI, told CNBC.

What goes up…

But those gains may not continue forever. Global debt climbed to more than $215 trillion in 2016 (325 percent of GDP) according to the Institute for International Finance, which also noted that emerging markets accumulated more than $39 trillion in debt since 2006.

IIF tweet.

IIF tweet 2.

"We are seeing some countries where fiscal frameworks are such that countries really need to double down and ensure that they don't get out of hand," said Sudhir Shetty, chief economist of the World Bank's East Asia and Pacific Region.

World Bank warns of 'policy uncertainty'

Shetty outlined some of the details of a new World Bank report, which said growth in East Asia and the Pacific will stay on track, with economies in the Association of Southeast Asian Nations likely to expand faster in 2017-18. But he raised the potential impact of monetary tightening in the U.S., along with the risks that could arise in Asia if protectionist and anti-globalization talk turns to action, something the IMF flagged earlier in the week.

The Trump factor

Still, a number of analysts remain excited about emerging markets — and EM Asia in particular. Much of that sentiment has to do with where the global economy has been heading, but it also hinges on President Donald Trump.

"People are hedging because if you don't get a Trump fiscal plan, the other side of that trade really is emerging markets," said Luciano Siracusano, chief investment strategist for WisdomTree Investments.

For Investec Asset Management's Power, it's not about when Trump's plans will be materialize, but if. In correspondence with CNBC, he argued that Trump is not so much the "Ace of Trumps" or even the "Joker," but is increasingly looking like a busted flush.

"The reflation trade has deflated. And I think that what we're beginning to realize at the moment is much of the promise of Trump is not going to be realized mainly because his ability to get much of his program through Congress is severely compromised. I think there was a lot of big talk and it's not being followed up by big action."

Steaks, cappuccinos, and espressos

Some of the head scratching over EMs and Asia, Power said, reminds him of the positioning on Latin America in the 1990s.

"[It] was all about the Brazilian steak with one or two potatoes being supplied by the other countries. But the steak was really all that was important. And if you didn't get the steak right you didn't get the region right," he said. "And increasingly, I think that emerging markets…if you don't get Asia right and specifically you don't get China right, you're not going to get the story right."

Of course, plenty of investors have concerns about China when it comes to transparency, access, corporate governance and regulation. Again, Power reflected on the past.

"One has to go back, if you want, to history and look in 1870. That's exactly what people were saying about the United States and we know what happened next. If you avoided the United States, you did badly," he said. "One of the ways of not avoiding it was to basically give your money to JPMorgan and they made it work for you and they made it work for you well."

For Power, it's all about finding a way to make money work in China and in Asia as a whole.

"I basically say [there are] two approaches. There's the cappuccino approach and there's the espresso approach," he said. "If you want Asia full on, you buy Asia direct: you go the espresso route. If you want Asia light, you go the cappuccino route. So you buy Nestlé or you buy Unilever, you buy the companies in the West that are, as fast as they can, diversifying into Asia."

Ultimately, it's a classic case of higher risks, higher returns.

"You will probably end up with more volatility in the espresso route than you will in the cappuccino route," he noted. "But as time progresses, I imagine that the advantage that you get from going the cappuccino route will dissipate and more and more people will want to go direct."