The New Wealthy in Asia     Prepared for: Financial Summit 2008     Prepared by: Spire Research & Consulting     Date: 15 ...
Aims of this talk        To describe the rise of the middle class in emerging        Asia – who, where, how much?        T...
In gist        The middle class is a hotly contested label, with        different variations        “Middle income” wealth...
Emerging Asia – room to grow               The size of the middle class in emerging economies will be well over 1b        ...
By 2030, Asia will have >4b people                                  Asia is still growing rapidly from a low base        W...
By 2030, Asia will have >4b people                                       Asia is still growing rapidly from a low base    ...
By 2030, Asia will have >4b people                                            Asia is still growing rapidly from a low bas...
Fundamentals of Demand Growth                                      Asia-Pacific growth looks sustainable        Definition...
Asia’s Rising Middle Class                                                   Sharp increase in East Asia & the Pacific    ...
Higher Incomes in Asia        By 2030, 40% of East Asia/Pacific’s population (>1b) will be in the top 8-10 deciles of     ...
Tourism from Asia’s Middle Class                                                      An indication of wealth        In 20...
Asia’s High Net Worth Individuals       The world’s High Net Worth Individuals (HNWI) grew to 9.5 million with their asset...
Asia’s High Net Worth Individuals  Asia-Pacific HNWI investments       Non-traditional investment products are gaining in ...
Income Disparity in Asia                                          Income distribution is worsening       Asian income dist...
Income Distribution                                          China and India have the most unequal income distribution    ...
Income Distribution                                          Income distribution in Japan highest among mature economies  ...
Asia’s Financial Sector                       The middle class in emerging Asia grapples with risk aversity       The trem...
Marketing Trends                The silver haired (>50 years) population is Asia’s segment of the future       21-24% of t...
Asia’s Finances       As at 2003, the savings rates in Indonesia (28%), India (22%) and China (16%) are       very high by...
Asia’s Asset Ownership Profile       Asset profiles consist mainly of real property. However, Japan and China have a      ...
Asia’s Financial Wealth Profile                                  Financial wealth is mostly held in savings accounts      ...
Asia’s Investment Landscape       Asia accounts for roughly one-third of global GDP in PPP terms, and one-fourth of       ...
Asia’s Investment Landscape       The bond market in Asia ex-Japan is considerably shallower than in the EU and US –      ...
Asia’s Consumers Credits       Credit can increase consumption under the most       difficult circumstances       Between ...
IT Trends       Page views per user are highest in Korea, Taiwan and Hong KongMortgage       lending has been rising rapid...
The Debt Picture in Asia                                                               Housing loans make up the bulk of d...
Considerations on Asia’s wealth management market       Asia-Pacific is the fastest-growing wealth management market in th...
Tel: (65) 6838 5355                                                        Fax: (65) 6838 5855                            ...
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080515_Financial Summit 2008_The New Wealthy in Asia

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080515_Financial Summit 2008_The New Wealthy in Asia

  1. 1. The New Wealthy in Asia Prepared for: Financial Summit 2008 Prepared by: Spire Research & Consulting Date: 15 May 2008Prepared for: FASAP 2008 Date: 15 May 2008 Page 1
  2. 2. Aims of this talk To describe the rise of the middle class in emerging Asia – who, where, how much? To analyze the context for middle class financial planning To assess the current state of play in terms of their assets and financial holdings, and how this will evolvePrepared for: FASAP 2008 Date: 15 May 2008 Page 2
  3. 3. In gist The middle class is a hotly contested label, with different variations “Middle income” wealth in emerging Asia is still far below that of developing countries, but much of the population and wealth growth is coming from this region High savings rates are a function of weak social safety nets and risk adversity towards medical expenses, unemployment, etc. Assets in emerging Asia are primarily are skewed towards home ownership and bank deposits As social safety nets develop, and more financial products become available, more investment will flow towards equities and fixed income products, while debt levels will probably risePrepared for: FASAP 2008 Date: 15 May 2008 Page 3
  4. 4. Emerging Asia – room to grow The size of the middle class in emerging economies will be well over 1b World population growth will be concentrated in developing countries in the coming decades In 2030 more than a billion people in developing countries will buy cars, engage in international tourism, demand world-class products, and require international standards for higher education Currently, North America owns about a third of the world’s wealth. Europe has a fraction less with 30% and Asia-Pacific is close behind at 24% This looks set to shift in Asia’s favor Singapore, India and Indonesia are countries with the worlds fastest growing numbers of high net worth individuals (HWIs) Other Asian regions that have particularly fast- growing numbers of wealthy residents are South Korea and Hong KongPrepared for: FASAP 2008 Date: 15 May 2008 Page 4
  5. 5. By 2030, Asia will have >4b people Asia is still growing rapidly from a low base World population growth will be concentrated in developing countries in the coming decades In 2030 more than a billion people in developing countries will buy cars, engage in international tourism, demand world-class products, and require international standards for higher educationPrepared for: FASAP 2008 Date: 15 May 2008 Page 5
  6. 6. By 2030, Asia will have >4b people Asia is still growing rapidly from a low base Currently, North America owns about a third of the world’s wealth. Europe has a fraction less with 30% and Asia-Pacific is close behind at 24% This looks set to shift in Asia’s favor Singapore, India and Indonesia are countries with the worlds fastest growing numbers of high net worth individuals (HWIs) Other Asian regions that have particularly fast-growing numbers of wealthy residents are South Korea and Hong Kong Asia’s standing in the world, 2006 data Region GDP (US$ billions) GDP per head US$ Annual growth 2000-2005 World 44.7 9,480 4.0 Developed 34.1 32,830 2.1 economies Asia* 4 4,840 7.9 Source: EIU based on IMF data *Note: Asia excludes Japan, Hong Kong, Singapore, Taiwan and South KoreaPrepared for: FASAP 2008 Date: 15 May 2008 Page 6
  7. 7. By 2030, Asia will have >4b people Asia is still growing rapidly from a low base As a general rule, a per capita annual income of US$5,000 is the threshold level at which a person in Asia becomes a discretionary spender* According to national statistics, more than 250 million people in Asia qualify right now – and the number is expected to surpass 500 million by 2010 GDP in Asia, 2007 GDP per capita GDP Country (USD) (milllions of USD) China 4,644 3,250,827 Hong Kong 39,062 206,707 India 2,469 1,098,945 Indonesia 3,454 432,944 S. Korea 22,988 957,053 Malaysia 12,536 148,940 Philippines 3,153 144,129 Singapore 44,707 161,349 Thailand 7,599 245,659 Vietnam 2,363 70,022 Japan 31,947 4,383,762 Sources: World Bank, IMF*Yiannis G. Mostrous, Elliott H. Gue, Ivan D. Martchev , “Silk Road to Riches, The: How You Can Profit by Investing in Asias Newfound Prosperity”, 27 Mar2006Prepared for: FASAP 2008 Date: 15 May 2008 Page 7
  8. 8. Fundamentals of Demand Growth Asia-Pacific growth looks sustainable Definition of middle-class: People at or above the equivalent of US$10 a day in 2005 and at or below the 90th percentile of the income distribution in their own country* By 2030,1.3 billion in developing countries (15% of the world population) will belong the global middle class, up from 400 million in 2005. Families of four in that class earn between US$16,000 and US$68,000 in PPP dollars This global middle class will participate actively in the marketplace, demand world-class products and aspire to international standards of higher education – they would be able to purchase automobiles, consumer durables and travel abroadPrepared for: FASAP 2008 Date: 15 May 2008 Page 8
  9. 9. Asia’s Rising Middle Class Sharp increase in East Asia & the Pacific Definition of middle-class: People at or above the equivalent of US$10 a day in 2005 and at or below Population in low- and middle-income the 90th percentile of the income distribution in countries earning US$4,000 – US$17,000 their own country* per capita (PPP) By 2030,1.3 billion in developing countries (15% of the world population) will belong the global middle class, up from 400 million in 2005. Families of four in that class earn between US$16,000 and US$68,000 in PPP dollars This global middle class will participate actively in the marketplace, demand world-class products and aspire to international standards of higher education – they would be able to purchase automobiles, consumer durables and travel abroad Source: World Bank calculations* Birdsall, Nancy, ‘The Macroeconomic Foundations of Inclusive Middle-Class Growth’, 2020 Focus Brief on the World’s Poor and Hungry People, December 2007Prepared for: FASAP 2008 Date: 15 May 2008 Page 9
  10. 10. Higher Incomes in Asia By 2030, 40% of East Asia/Pacific’s population (>1b) will be in the top 8-10 deciles of global income distribution, up from 20% now Population of each region by deciles of global income distribution Source: The International Bank for Reconstruction and Development / The World Bank, ‘Global Economic Prospects: Managing the Next Wave of Globalization’Prepared for: FASAP 2008 Date: 15 May 2008 Page 10
  11. 11. Tourism from Asia’s Middle Class An indication of wealth In 2004, 20% of all outbound tourism came from East and South Asia’s middle class Tourism in 2004 Source: World Tourism OrganizationPrepared for: FASAP 2008 Date: 15 May 2008 Page 11
  12. 12. Asia’s High Net Worth Individuals The world’s High Net Worth Individuals (HNWI) grew to 9.5 million with their assets rising to US$37.2 trillion in 2006 Asia-Pacific was home to five of the 10 fastest growing markets for HNWIs, including Singapore, India and Indonesia, where the HNWI populations grew by 21.2%, 20.5% and 16%, respectively, compared with the global HNWI expansion of 8.3%; Korea and Hong Kong were also in the top 10 fastest growing markets globally Source: World Wealth Report 2007, Merrill Source: Capgemini Lorenz curve analysis, Lynch/Capgemini 2007Prepared for: FASAP 2008 Date: 15 May 2008 Page 12
  13. 13. Asia’s High Net Worth Individuals Asia-Pacific HNWI investments Non-traditional investment products are gaining in popularity as Asian investors seek better domestic returns and foreign institutions seek involvement in the high-growth region Within the region, asset allocation differed significantly from market to market Australian HNWIs, for example, allocated 37% of their assets to equities, the highest level in the region Investors in China and Indonesia also had relatively high equity allocations Investors in South Korea, on the other hand, allocated the largest percentage of their portfolios to real estate Asia-Pacific HNWIs are increasingly looking at internationalizing their investment portfolios and, over the longer term, re-balancing their asset allocations in favor of alternative investments, equities and fixed income In addition, Asia-Pacific HNWIs are increasing their international exposure although still maintain a very regional portfolio focus Slightly more than half of Asia-Pacific HNWIs assets were invested within the region and slightly more than a quarter of their holdings were allocated to North AmericaPrepared for: FASAP 2008 Date: 15 May 2008 Page 13
  14. 14. Income Disparity in Asia Income distribution is worsening Asian income distribution is has generally been worsening since 1998 and in some countries (e.g. China) is approaching Latin American levels Percentage share of income or consumption Country/Region Year Highest 20% Lowest 20% Gini Index China 2001 46.6 5.9 44.7 Hong Kong 1996 50.7 5.3 43.4 India 2000 43.3 8.9 32.5 Indonesia 2002 43.3 8.4 34.3 S. Korea 1998 37.5 7.9 31.6 Malaysia 1997 54.3 4.4 49.2 Philippines 2000 52.3 5.4 46.1 Singapore 1998 49 5 42.5 Thailand 2000 50 6.1 43.2 Vietnam 2002 45.4 7.5 37 Japan 1993 35.7 10.6 24.9 Latin America 2000 56.8 3.55 n.a. Europe* 2000 40.8 7.1 n.a. U.S. 2000 45.4 5.2 40.8 *UK, Germany, France, Italy. Source: Economist 2007 Source: World Bank, World Development Indicators 2005Prepared for: FASAP 2008 Date: 15 May 2008 Page 14
  15. 15. Income Distribution China and India have the most unequal income distribution 2001 Rising incomes, especially in India and % of Total Number of Household China, points to a positive outlook for future consumerism. Over the last decade, ~1% of India’s poor graduate to join the middle-income class 2005 annually. % of Total Number of Household • Using home and car purchases as indicators, the growth of the Chinese middle class is said to be even faster than the economy’s overall growth. US$ Source: Global Market Information DatabasePrepared for: FASAP 2008 Date: 15 May 2008 Page 15
  16. 16. Income Distribution Income distribution in Japan highest among mature economies 2001 Developed countries % of Total Number of Household • A growing middle income segment is also seen in developed countries. • Japan has a unique, egalitarian income distribution. • On average, all AP countries (emerging + 2005 developed) would have % of Total Number of Household the top 20% of the population earning ~45% of total private income while the lowest 20% earns only ~7%. US$ Source: Global Market Information DatabasePrepared for: FASAP 2008 Date: 15 May 2008 Page 16
  17. 17. Asia’s Financial Sector The middle class in emerging Asia grapples with risk aversity The tremendous promise for financial planning in Asia comes from a combination of factors: the blistering growth of its middle classes, the rapid ageing of its population against a backdrop of weak social security nets and a savings rate that far outstrips the rest of the world In China, middle class families by one measure include about 130 million people, and their purchasing power is close to that of the more developed Asian economies The household income for these families surpasses US$24,000 Economists expect that another 40 million people will join this group in the next decade The constraint and opportunity for financial planning comes from risk aversity among the more broad middle class segment…. …stemming from concerns over medical expenses, a relative lack of insurance products, an aging trend and a small/falling number of childrenPrepared for: FASAP 2008 Date: 15 May 2008 Page 17
  18. 18. Marketing Trends The silver haired (>50 years) population is Asia’s segment of the future 21-24% of the population are aged >50 in China, Korea, Taiwan, Thailand & Singapore in 2005 (30% in Australia & Hong Kong) – the silver hair segment is substantial In AP, 77% of international companies have no silver hair strategy, but one third of those 77% plan to rectify this in 3-5 years time Among AP companies, Japan is seen as having the most silver hair potential followed by China Asia Pacific’s demographic transformation Percentage of population aged 50 and above 100 90 80 70 59 53 57 60 50 52 48 45 46 43 45 50 >40 40 42 38 39 37 33 37 40 30 30 30 31 24 24 28 24 30 22 23 23 21 20 15 16 15 20 10 0 a ng re ia a lia nd n a an e ia l si ta a ys in o or a Ko d ila e p iw p To h tr la In K on Ja a C ng a us Ta a h ng Th d A ut M o In Si H So Countries in Asia Pacific Source: US Census Bureau 2005 2030 2050Prepared for: FASAP 2008 Date: 15 May 2008 Page 18
  19. 19. Asia’s Finances As at 2003, the savings rates in Indonesia (28%), India (22%) and China (16%) are very high by global standards Changes in household savings in Asia (1980 – 2000) Source: World Bank, World Development IndicatorsPrepared for: FASAP 2008 Date: 15 May 2008 Page 19
  20. 20. Asia’s Asset Ownership Profile Asset profiles consist mainly of real property. However, Japan and China have a higher share of financial assets aside versus real property as compared with India and Indonesia In Asia, Japan is the largest contributor to the overall REIT market capitalization with 64% share of the pie. This is followed by Singapore (19%) and Hong Kong (13%) Asset Composition in Selected Countries Source: The World Distribution of Household Wealth’, World Institute for Development Economics Research of the United Nations UniversityPrepared for: FASAP 2008 Date: 15 May 2008 Page 20
  21. 21. Asia’s Financial Wealth Profile Financial wealth is mostly held in savings accounts Savings account feature strongly in transition economies and in rich Asian economies (Japan, Singapore, Taiwan, and South Korea) With the exception of Taiwan, Asian countries tend to be conservative when investing in shares and equities. Composition of financial wealth in selected developed countries Source: The World Distribution of Household Wealth’, World Institute for Development Economics Research of the United Nations UniversityPrepared for: FASAP 2008 Date: 15 May 2008 Page 21
  22. 22. Asia’s Investment Landscape Asia accounts for roughly one-third of global GDP in PPP terms, and one-fourth of global exports, but only 13% of the global equity market. 2004 bank deposits were approximately 180% of GDP in China, 50% in India and 40% in Indonesia. Bank heavy Investments composition Asia still depends too much on bank financing. (percent of GDP) Bank deposits Equity market Bond market 1990 2004 1990 2004 1990 2004 China 75.6 177.8 n.a. 40.3 8.5 29.4 Kong 205.6 299.3 107.2 486.3 1.5 28.3 Kong SAR India 31.4 51.1 10.4 48.4 19.9 31.7 Indonesia 29.8 38.9 4.4 24.9 0.4 24.1 Japan 100 120.5 121.7 73.2 85.9 181.6 Korea 32.6 68.8 48.2 56.1 34.1 74.9 Malaysia 52.1 88.7 100 152.6 69.8 89.3 Singapore 74.3 104.4 95.8 149 27.8 58.6 Thailand 56.8 79.7 29.2 72.3 9.7 38.9 Germany 53.8 96.7 21.7 42.2 51.6 80.3 United 87.8 115 85.2 123 36.8 43.9 Kingdom United 59.6 58.8 57.5 131.6 122 157.2 States Europe 42.1 86.8 52.3 72.1 65.9 88.8 Source: CEIC data; World Bank, FinancialFinancial set (February 2006). (Feb 2006) Sources: CEIC data, World Bank, Sector data Sector data set Note: n.a. denotes not available.Prepared for: FASAP 2008 Date: 15 May 2008 Page 22
  23. 23. Asia’s Investment Landscape The bond market in Asia ex-Japan is considerably shallower than in the EU and US – accounting for only 45% of GDP, half the size of the EU bond markets. Bond markets of the world Source: The Art of Reform. Andrew Sheng, Finance & Development, June 2006. Volume 43, Number 2.Prepared for: FASAP 2008 Date: 15 May 2008 Page 23
  24. 24. Asia’s Consumers Credits Credit can increase consumption under the most difficult circumstances Between 2001 and 2005, the US consumer was able to spend not because income increased, but because prices of goods decreased and credit was readily available Even the rise in housing prices, which allowed consumers to borrow against their house value in order to spend, was the consequence of the Federal Reserve’s extremely loose monetary policy The more advanced economies in Asia (for example, South Korea, Hong Kong, Singapore) have greater penetration levels than those of less developed ones like China and India Credit penetration grows, with complex effects on risk aversity and financial investment patternsPrepared for: FASAP 2008 Date: 15 May 2008 Page 24
  25. 25. IT Trends Page views per user are highest in Korea, Taiwan and Hong KongMortgage lending has been rising rapidly in the Asian region - most have seen the stock of real housing credit double since 1999 Growth in the housing lending have been pushed by changes in the housing lending market, like outright introduction of mortgage products in China, longer-dated mortgages in Thailand and Korea, and the introduction of private mortgage insurance in Hong Kong SAR Housing Loans in Asia (in percent)Prepared for: FASAP 2008 Date: 15 May 2008 Page 25
  26. 26. The Debt Picture in Asia Housing loans make up the bulk of debt Asians tend to feel secure only with a roof over their heads Korean internet users view the most number of pages (approximately twice as many pages as the regional average of 2,171 pages per user). More focused and selective online presence should be employed to reach out to the Australian, New Zealand and Malaysian consumers as they tend to dedicate more time to viewing fewer pages. Online Page Viewing May 2007* User Ave Minutes Spent Per Page View Per 6,000 1.00 Ave Monthly Pages Viewed Per Ave Monthly PAGES Viewed Per User 0.90 Ave Minutes Spent Per Page Viewed Per User 5,000 0.80 4,000 0.70 0.60 3,000 0.50 0.40 2,000 0.30 0.20 1,000 0.10 User - - CN IN MY HK JP SG S.KR TW AUS NZPrepared for: FASAP 2008 Date: 15 May 2008 Page 26
  27. 27. Considerations on Asia’s wealth management market Asia-Pacific is the fastest-growing wealth management market in the world Asia’s middle classes live with risk aversity due to weak social safety nets, an ageing population and a small number of children Savings accounts tend to be favored in Asian countries because of risk aversity and a lack of confidence in financial markets, but this is changing Debt levels and financial investment in non-bank deposits will certainly grow, in both cases driven by rising incomes and increasing availability of financial products The pace of liberalization of investment rules in Asia will remain highly uneven Asia’s ageing population will increasingly have a positive impact on share market valuations, as those approaching retirement save more of their incomes, putting some into equities With high broadband penetrations and the cultural impact of E-communities, the internet as a channel, marketing platform and interactivity tool for financial investment may become critical in Asia, as the Taiwanese example showsPrepared for: FASAP 2008 Date: 15 May 2008 Page 27
  28. 28. Tel: (65) 6838 5355 Fax: (65) 6838 5855 78 Shenton Way #20-01 Singapore 079120 sg.info@spireresearch.com www.spireresearch.comPrepared for: FASAP 2008 Date: 15 May 2008 Page 28

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