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Ten trends that will shape Asia in 2014: Carnegie

Global think tank Carnegie Endowment for International Peace expects 2014 to be a volatile year for Asian investors due to rising political risk, security tensions and skepticism over the commitment to economic reform in China, Japan, India and Indonesia. Thus, it expects these ten trends to shape the landscape for investors this year.

1. Asia drives demand

For decades G7 countries have been buying Asian exports and investing heavily in Asian economies, but Asia's role has transformed; the region has become a major factor in advanced economies' own growth stories, with Asia now investing in and consuming more from overseas. A key example is Asia's relationship with the U.S.; American demand for Asian goods has powered Asia's export-led economies since the 1960s, but now Asia has become an important export destination for various U.S. goods including corn, soybeans, pork and natural gas.

(Read More: This Asian market laggard could shine in 2014)

2. Security fragmentation threatens economic integration

The primary challenge for Asia will be the conflict between economics and security, said Carnegie. The major powers in Asia are mistrustful and prone to nationalism, as has been evident with the territorial disputes between China and Japan in recent years. The think tank expects this conflict to sharpen in 2014, and is particularly concerned about China.

"Bluntly put, Beijing's long-term strategic intentions inspire deep anxieties," read the report.

3. The contested commons

Regional tensions will not be limited to territorial disputes but will translate to the global commons as well. China announced its air defense identification zone in November and similar declarations are likely in 2014, said Carnegie, leading to disputes over rights of passage, freedom of navigation and diverging interpretations of customary international law.

(Read More: Four big challenges for Asia in 2014: HSBC)

4. Japan's pivot to Asia

As strategic wariness between Tokyo and Beijing intensifies, Japanese Prime Minister Shinzo Abe is expected to continue to strengthen Japan's pan-Asia diplomacy, through leveraging project finance, trade, aid, people to people exchanges and security cooperation. Investments may begin to flow out of China to other Asian destinations if tensions escalate in 2014. According to Carnegie, one challenge will be for Tokyo and Washington to stay coordinated

5. North Korea's great unraveling

The execution of Jang Song-thaek, the uncle of North Korean leader Kim Jong-un, highlighted internal divisions and questions over the stability of the regime. Carnegie expects instability risk to rise in 2014. If Pyongyang continues to use provocative measures, especially in the form of conventional attacks around or beyond its disputed maritime border with South Korea, these could be destabilizing as they would question the conventional deterrence that has kept the peace for the past six decades.


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