Download Asian Economic Overview

Asian Economic Overview
Asian Economic
Overview
Dave Perrett
Regional Strategist
PPM Asia
15th Nov, 2000
Content




Regional overview
The Asian Crisis
Medium term growth outlook
Prospects for the regional savings
market
 Opportunities for foreign owned
institutions
 Summary
1
Asian Economic Overview
Regional
Overview
A Diverse And Highly
Populated Continent
7x US
UK + France
+ Germany
Population m
China
1,259
India
986
Indonesia
206
Japan
126
Vietnam
80
Philippines
76
Thailand
62
S. Korea
46
Malaysia
22
Taiwan
22
Hong Kong
7
Singapore
4
Source: World Bank and UBSW
3
Asian Economic Overview
Large Differences In Relative
Wealth
GDP per head £
Japan
23,248
Hong Kong
15,400
Singapore
14,373
Taiwan
8,841
S. Korea
5,877
Malaysia
2,354
Thailand
1,354
Philippines
693
China
532
Indonesia
419
India
305
Vietnam
253
Source: World Bank and UBSW
4
Asian Economic Overview
Wealth Concentrated In Small
Proportion Of Population
% share of
consumption by
top 20% of pop’n
Malaysia
54
Singapore
49
Thailand
48
China
47
India
46
Indonesia
45
S. Korea
39
Source: World Bank and UBSW
5
Asian Economic Overview
Young Population In Less
Developed Economies
% of population under 24 years old
58
60.0%
51
50.0%
41
53
43
35
40.0%
30.0%
53
28
31
20.0%
10.0%
0.0%
Japan
Japan
UK
United
US
States
China
Thai
Thailand
Indo
India
India
Malay
Philippines
Phil
Source: US Census Bureau and International Data Base
6
Asian Economic Overview
High Asian Propensity To
Save
60.0%
Savings
as a % of GDP
51
50.0%
36
40.0%
38
33
26
30.0%
28
30
22
20.0%
19
10.0%
0.0%
United
US
States
Taiwan Japan Hong
India Taiwan
HK
Kong
Sing
Korea Thailand
Thai Malay Singapore
Source: Asia Development Bank and UBSW
7
Asian Economic Overview
The Asian Crisis
The Boom
 Early 90’s - Everybody wanted to join the
Asian Tiger miracle
– Capital inflows leading to rapid credit growth
 Significant Capacity Investment
– Predicated on rapid growth predictions
£ bn
150,000
100
120,000
80
90,000
60
60,000
40
30,000
20
0
0
-30,000
(20)
1992
1992
1993
1993
1994
1994
1995
1995
1996
1996
Total Capital Flows
Equity flows
1997
1998
1997
1998
1999
1999
Debt Funding
Debt funding
9
Asian Economic Overview
The Crisis
 Demand for Asian goods slowed and
pricing power ebbed
– Growth forecasts over optimistic
– Returns on capital fell
 Thai baht devalues
– Investors underestimated risk
– Retreat became a rout
 Asia stops importing
– Domestic demand collapses
10
Asian Economic Overview
The Recovery
15
Real GDP growth 1997 - 2000
%
10
5
0
-5
-10
-15
Japan
1997
Singapore
1998
Thailand
1999
Indonesia
Korea
2000
 Large trade surpluses and low asset prices lead to
currency stability
 V-shaped recovery in 1999 and 2000
11
Asian Economic Overview
Post Crisis - Medium
Term Outlook
Asian Growth Model
Still Valid
 Asian Crisis was inevitable conclusion of 1990’s
prolonged cyclical excess
 Key ingredients of Asian growth model remain
– Young population in South East Asia and China
– Entrepreneurial environment in many countries
– High savings rate
– Emphasis on education and openness to trade
– Increasing urbanisation
 Legacy will be more prudent, market driven
capital allocation
13
Asian Economic Overview
Asia: Strong 30 Yr Average
Real GDP Growth Rates
% 1971-1999
9.0%
7.6
8.0%
7.0%
6.5
6.6
Thailand
Thai
Hong
Kong
HK
8.0
8.1
8.6
6.9
5.9
6.0%
4.9
5.0%
4.0%
3.3
3.5
Japan
Japan
Philippines
Phil
3.0%
2.0%
1.0%
0.0%
India
India
Indonesia
Indo
Malaysia
Malay
Korea
Korea
Singapore
Sing
Taiw an
China
Taiwan
China
Asia has weathered many crises in past 30 years and
still produced high average GDP growth rates
Source: World Bank and UBSW
14
Asian Economic Overview
Medium Term Growth Forecasts
Impressive By Global Standards
Country
China
Hong Kong
India
Indonesia
Japan
Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
Vietnam
GDP %
7.0
4.0
6.0
5.5
2.0
5.5
5.5
5.0
5.0
5.5
5.0
6.0
Source: PPM Asia
15
Asian Economic Overview
Prospects For
Regional Savings
Market
Overview Of Key Drivers For
Savings
 Cultural inclination to save reinforced by
– Limited social security
– “Scare” of the Asian Crisis
 Rapid urbanisation
– Shift away from poor rural farming economy
– Breakdown of traditional family support groups
 Increasingly educated population
– Higher skilled
– Growing middle class
17
Asian Economic Overview
Pre And Post Crisis
Fiscal Deficits
% of GDP
2
1
1.0
0
0.0
-1
-1.0
-2
-2.0
-3
-3.0
-4
-4.0
-5
-5.0
-6
-6.0
-7
-7.0
-8
Japan
Japan
1996
India
India
Malaysia
Thailand
Malay
1996
Korea
Thai
2000
Korea
2000
Post crisis governments cannot afford to improve
social security networks
Source: World Bank, Key Indicators of Developing Asian and
Pacific Countries (1999) and Merrill Estimates
18
Asian Economic Overview
Urban Population Increasing
% of total population
60%
60
50%
50
40%
40
30
30%
20
20%
10
10%
0
0%
Thai
Thailand
1980
Korea
Korea
1998
China
China
1980
Malay
Malaysia
Phil
Philippines
1998
Source: World Bank and UBSW
19
Asian Economic Overview
Urban Workers’ Incomes
Significantly Higher
Than Rural Counterparts
£ per year
806
493
1,000
220
0
166
China
China
Rural
Urban
Rural ($ per year)
India
India
Urban ($ per year)
Source: World Bank and UBSW 1995-1999
20
Asian Economic Overview
Population Becoming
Better Educated
Secondary %school
of Relevant Age Group
% Attending secondary
70
70%
60
60%
50
50%
40
40%
30
30%
20
20%
10
10%
00%
China
China
1980
Indonesia
Indo
1997
India
India
1980
Malaysia
Malay
Thailand
Thai
1997
Source: World Bank and UBSW
21
Asian Economic Overview
Increasing Consumer
Sophistication In Savings
Market
 Majority of personal savings in bank deposits
– Asian equity “speculator” in a small minority
 Increasing demand for wider choice
– Improved information flows leads to greater
transparency
 Widespread change in savings habits likely
across region
22
Asian Economic Overview
Asia: Preference For
Low Risk
% Distribution of personal savings by asset class
100
7
15
100
90
80
10
80
70
33
60
60
50
40
68
40
30
44
20
2
20
10
12
0
Asia
0
Asia
Pension
Mutual Fund
United
States
United States
Insurance
Deposits
Source: McKinsey 1998
23
Asian Economic Overview
Prospects For
Foreign Owned
Savings Institutions
%
Low Current Foreign
Providers Market Share
%
98
98
95
88
%
%
%
%
%
%
%
12
%
2
%
%
Indonesia
Indo
Domestic
Japan
Japan
Domestic
Foreign
5
2
Korea
Korea
Thailand
Thai
Foreign
Source: Credit Suisse First Boston
25
Asian Economic Overview
Good Prospects For Foreign
Owned Savings Institutions
 Increasing consumer acceptance of
foreign brands
 Asian financial sector increasingly open
to foreign ownership
 China’s WTO entry
 Cost of entry, post currency
devaluations, now significantly lower
26
Asian Economic Overview
Markets Opening Up To Foreign
Ownership
Restrictions Eased
On Discretionary
Basis
Foreign
Majority Foreign
Ownership
Ownership
Ceilings Raised Allowed



Japan
Korea
Thailand

India
Malaysia
Singapore
Taiwan



27
Asian Economic Overview
Opportunities For Foreign
Owned Financial Institutions
 Loss of confidence in local institutions
 Local institutions have insufficient
resources to upgrade products and
services
 Greater access to consumers via new
technology
 Increasing financial sophistication of
consumers
28
Asian Economic Overview
Summary
 Asia - populous and diverse
 Solid growth drivers in place. Outlook for
robust, but smarter, more sustainable growth
 Growing middle class, rapid urbanisation and
poor social security net mean strong demand
for long term savings products
 Increasing saver sophistication will prompt a
trend away from bank deposits
 Recent liberalisation has increased entry
opportunities
Fundamentals for growth remain strong with excellent
prospects for foreign owned RFS players
29
Asian Economic Overview