Our interest in Australia is not only driven by the country’s abundance of natural resources, but also by its proximity to fast-growing Asian emerging markets.

And a new report from HSBC forecasts that Asian markets will absorb roughly 80 percent of Australia’s exports by 2020, an increase of about 7 percentage points from current levels.

Trade ties between Australia and Asia have been on a dramatic rise since 2000, when Asian demand accounted for a still substantial though far lower 50 percent of Australian exports.

In 2013, developing Asia was the destination for USD126.6 billion in Australian exports, or 48.6 percent of the country’s total exports. Naturally, China is Australia’s largest trading partner by far, accounting for USD91.6 billion, or 35.2 percent of the country’s total exports last year.

Meanwhile, slow-growing Japan came in second, consuming nearly USD51 billion in Australian exports, or 19.6 percent of the total.

Together, China and Japan are projected to absorb 60 percent of Australia’s exports by 2020, an increase of 5.2 percentage points from 2013.

South Korea rounds out the top three, with USD20.8 billion in Australian exports, or almost 8 percent of the total.

In addition to the three aforementioned countries, HSBC believes that India and Indonesia, which currently absorb just 4.3 percent and 1.9 percent of Australian exports, respectively, could figure more prominently among the country’s export destinations.

Though these two countries are largely self-sufficient on the resource front at present, their continued growth could eventually prompt demand for imported commodities. After all, the same economic evolution occurred in China, where prior to 2004 demand for commodities was largely satisfied by domestic resources.

But even with Australia’s already strong penetration of Asia’s largest export markets, HSBC says the region’s burgeoning middle class will spur incremental gains, thanks to rising demand for high-quality food, as well as education and leisure opportunities.

Of course, the resource sector will also continue to be a big beneficiary of Asian demand over the long term. HSBC projects iron ore exports will rise more than 50 percent by 2020, while liquefied natural gas (LNG) exports will more than quadruple from current levels as projects come on line.

The emerging Asian middle class is expected to increasingly demand the more protein-rich diet that becomes more affordable with higher incomes.

And Chinese consumers still harbor suspicions of the quality of domestic food products as a result of the country’s melamine-tainted baby formula scandal. As such, many Chinese are willing to pay a premium for food products sourced from Australia, New Zealand and other developed-world countries in the region.

Then there are services, particularly in areas such as education and tourism, that are benefitting from the influx of Asian students and tourists. The number of Chinese tourists visiting Australia has doubled since 2010, for instance.

In the nearer term, Australian companies aren’t simply waiting for demand to come to them. They’re actively expanding their operations into Asia in pursuit of game-changing growth.

HSBC reported that its survey of small and medium-sized enterprises (SMEs) shows that 46 percent of these businesses plan to further grow their existing international operations over the next 12 months, with 49 percent identifying China as their top destination.

Of these firms, 32 percent operate in services industries, up from 8 percent a year ago.

According to Australia’s Department of Foreign Affairs and Trade, the export of goods and services is projected to account for 21.9 percent of gross domestic product (GDP) in 2014, up 1.4 percentage points from last year.

So export activity is not just an investment theme, but a crucial component of the Australian economy. And the country’s success in this arena should flow through to other sectors of the economy.

Portfolio Update

It might seem like an exercise in futility to provide an update on the earnings of a company that’s about to be acquired, but Conservative Portfolio holding Australand Property Group Ltd (ASX: ALZ, OTC: AUAOF) delivered such strong first-half results that a number of investors are holding out for a better offer.

During the first half of fiscal 2014, the real estate investment trust’s (REIT) operating profit after tax rose 30 percent year over year, to AUD80.8 million.

And the Group’s statutory result was a net profit after tax of AUD131.5 million, a 49 percent jump from the prior-year period.

Management largely attributed this performance to strength in the residential sector.

Subscribers will recall that Australand was previously subject to a bid from Stockland Corp Ltd (ASX: SGP, OTC: STKAF) earlier this year, before Singapore-based real estate company Frasers Centrepoint Ltd (OTC: FRZCF), which is controlled by Thai beer billionaire Charoen Sirivadhanabhakdi, swooped in with a superior all-cash offer of AUD2.6 billion.

Australand’s board has encouraged shareholders to accept Frasers’ offer. But according to The Australian, shareholder acceptances of the AUD4.48 per share in cash remain “stubbornly low,” with the hope that Stockland might return with another bid that trumps Frasers.

Stockland’s previous offer was a cash-and-scrip deal that valued Australand at AUD2.5 billion, and Stockland still holds 19.9 percent of Australand’s units outstanding.

While most mutual fund managers have already sold their stakes, many hedge funds are apparently betting on at least one more round of bidding. Though the likelihood of this possibility seems to be a minority view among analysts, nothing would surprise us at this point given all the drama that’s already occurred.

But we’ll be perfectly happy to accept an even higher offer.

Australand remains a hold.