Investing in the Asian Century

With its rapidly growing middle classes, innovative business models and embracing of mobile, financial and innovative technology, Asia’s economies are set to eclipse the west and could potentially provide opportunities for investors.

Investing in the Asian Century

Asia’s turbo-charged GDP growth is transforming the wealth and prosperity of its populations and shifting the balance of global economic power dramatically eastwards. Major changes in demographics and middle-class consumer spending are the drivers behind this phenomenon, which is being hailed as the dawn of the Asian Century.

Wealth has been growing rapidly in Asia in the two decades since the Asian Financial Crisis of 1997 marked a watershed in perceptions and acted as a catalyst for change.

According to the 2018 Capgemini World Wealth Report, Asia had the highest rate of wealth growth in the world in 2017, at 14.8 per cent. Indeed, China now has nearly two million millionaires, measured in dollar terms2.

Putting this in perspective, of the estimated USD30 trillion in middle-class consumption growth that will happen between 2015 and 2030, only USD1 trillion is expected to come from western economies3. Most of the rest will come from Asia.

Empty nesters and full wallets

Demographic changes are playing a large part in this. The number of so-called empty nesters in China is growing rapidly and is emerging as a long-term driver for higher consumer spending. They are typically living in two-person households, aged 40-64, and have personal income of more than USD50,000 per annum4.

These couples tend to have more discretionary income as their only child (a consequence of China’s one-child policy, introduced in the late 1970s and only recently abandoned5) has left home.

Not only is this army of empty nesters spending more on healthcare, but their increasing affluence and brand-awareness is resulting in more discretionary spending on higher margin luxury products.

Well-off middle-aged consumers, it seems, are just as keen on premium products as the younger generations and are willing to spend a lot on leading fashion and clothing.

India’s wealth is also soaring as its younger population becomes more urbanised and enjoys rising income levels. This is boosting expenditure on housing, healthcare and communications as well as on affordable luxury items, entertainment and travel.

Urban and affluent

Although China and India are the dynamic duo of rising Asian wealth, with 40 per cent of the world’s population between them, they are by no means alone.

The main ASEAN countries (Malaysia, Singapore, the Philippines, Indonesia, Thailand and Vietnam) are also seeing increased consumer spending as a result of rising incomes and urbanisation. They still spend comparatively little on healthcare (around 5 per cent of GDP, compared to 10 per cent in Japan and 17 per cent in the US6) but this is beginning to take off with forecast growth of 7 per cent per year until 20257.

On the one hand, this is driven by the needs of ageing populations, high numbers of smokers and rising rates of obesity. On the other hand, people are living longer and they have more disposable income to spend on their health.

This rapidly growing affluence is seen, for example, in the pattern of demand for electric vehicles (EV). China, home to the world’s largest domestic car market, now accounts for more than half of all EV global sales and production.

BATs can have FAANGs

Another key aspect of rising Asian wealth is rapid growth in Internet usage. The digital transformation is being brought about by rising penetration in mobile and data services and biometric penetration. Consumers are increasingly shifting away from traditional suppliers and use online platforms.

In the west we tend to think of these technologies as being dominated by the so-called FAANGs (Facebook, Amazon, Apple, Netflix and Google) but Asia has its own version in the BATs: Baidu, Alibaba and Tencent. The trio of technology giants already dominate digital and social marketing in the world’s second largest economy. Their interests range from artificial intelligence and driverless cars to medical diagnostics and smart city connectivity technology, and their combined valuation is now more than USD1 trillion8.

But while mainstream America still relies heavily on its chequebooks, the mobile payment market in Asia is enormous and growing rapidly. China leads the world in the adoption of fintech applications and solutions, followed by India. This is both reflected in, and driven by, the fact that investors injected USD59 billion of funding into Asian technology companies and start-ups in 20189.

The spending power of the rising middle classes is demonstrated by Alibaba’s Singles Day. This is a 24-hour online commerce event, similar to Black Friday or Cyber Monday in the US, which takes place on the 11th of November each year.

Asia’s incredible growth is being driven by the consumer spending of a rapidly emerging middle class, innovative digital commerce models and widespread adoption of fintech. With that rise in wealth comes an irresistible surge in demand for consumer and luxury goods, cars, designer clothes, electronics and appliances, travel, energy and much else.

If these staggering indications are anything to go by, it is clear that this is a century that belongs to Asia.

For more information on how you can potentially leverage Asia’s rising wealth in your investment strategy, speak to your Relationship Manager or Investment Counsellor.

1Franklin Templeton, August 2018
2Wealth-X, High Net Worth Handbook, 2019
3World Economic Forum, Why we are living in the Asian century, 2019
4HSBC, Rising Asian Wealth, December 2018
5The Economist, July 2018
6World Bank 2014
7Solidiance Analysis, 2018
8Macrotrends, April 16, 2019
9Bain & Co, Asia Pacific Private Equity Report, March 2019
10CNBC, November 2018
11Bloomberg, November 2018

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