Asian Economic Overview

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(No Transcript)
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Asian Economic Overview
Dave Perrett
Regional Strategist PPM Asia
15th Nov, 2000
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Content

• Regional overview
• The Asian Crisis
• Medium term growth outlook
• Prospects for the regional savings market
• Opportunities for foreign owned institutions
• Summary

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4
Regional Overview
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A Diverse And Highly Populated Continent
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
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Asian Economic Overview
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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
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Asian Economic Overview
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Wealth Concentrated In Small Proportion Of
Population
share of consumption by top 20 of popn
Malaysia 54 Singapore 49 Thailand
48 China 47 India 46 Indonesia 45 S. Korea 39
Source World Bank and UBSW
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Asian Economic Overview
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Young Population In Less Developed Economies
of population under 24 years old
58
53
53
51
43
41
35
31
28
Japan
UK
US
Thai
Phil
China
Malay
India
Indo
Source US Census Bureau and International Data
Base
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9
High Asian Propensity To Save
Savings as a of GDP
51
38
36
33
30
28
26
22
19
Sing
US
India
Taiwan
Japan
Malay
HK
Korea
Thai
Source Asia Development Bank and UBSW
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10
The Asian Crisis
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The Boom

• Early 90s - Everybody wanted to join the
  Asian Tiger miracle
• Capital inflows leading to rapid credit growth
• Significant Capacity Investment
• Predicated on rapid growth predictions

bn
100806040200(20)
1992
1993
1994
1995
1996
1997
1998
1999
Equity flows
Debt funding
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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

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The Recovery
Real GDP growth 1997 - 2000

151050-5-10-15
Singapore
Thailand
Indonesia
Korea
Japan

• Large trade surpluses and low asset prices lead
  to currency stability
• V-shaped recovery in 1999 and 2000

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Post Crisis - Medium Term Outlook
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Asian Growth Model Still Valid

• Asian Crisis was inevitable conclusion of 1990s
  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

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Asia Strong 30 Yr Average Real GDP Growth Rates
1971-1999
8.6
8.1
8.0
7.6
6.9
6.6
6.5
5.9
4.9
3.5
3.3
Japan
Phil
India
Indo
Thai
Malay
Sing
Taiwan
China
HK
Korea
Asia has weathered many crises in past 30 years
and still produced high average GDP growth rates
Source World Bank and UBSW
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Medium Term Growth Forecasts Impressive By Global
Standards
Country GDP China 7.0 Hong Kong 4.0 India 6.
0 Indonesia 5.5 Japan 2.0 Korea 5.5 Malaysia
5.5 Philippines 5.0 Singapore 5.0 Taiwan 5.5 T
hailand 5.0 Vietnam 6.0
Source PPM Asia
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Prospects For Regional Savings Market
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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

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Pre And Post Crisis Fiscal Deficits
of GDP
210-1-2-3-4-5-6-7-8
Thai
Japan
India
Malay
Korea
1996
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
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Urban Population Increasing
of total population
6050403020100
Thai
Phil
Korea
China
Malay
1980
1998
Source World Bank and UBSW
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Urban Workers Incomes Significantly Higher Than
Rural Counterparts
per year
806
493
220
166
China
India
Rural
Urban
Source World Bank and UBSW 1995-1999
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Population Becoming Better Educated
Attending secondary school
706050403020100
Malay
Indo
India
China
Thai
1980
1997
Source World Bank and UBSW
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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

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Asia Preference For Low Risk
Distribution of personal savings by asset class
100 80 60 40 20 0
Asia
United States
Pension
Mutual Fund
Deposits
Insurance
Source McKinsey 1998
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Prospects For Foreign Owned Savings Institutions
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Low Current Foreign Providers Market Share

98
98
95
88
12
5
2
2
Thai
Indo
Japan
Korea
Domestic
Foreign
Source Credit Suisse First Boston
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Good Prospects For Foreign Owned Savings
Institutions

• Increasing consumer acceptance of foreign brands
• Asian financial sector increasingly open to
  foreign ownership
• Chinas WTO entry
• Cost of entry, post currency devaluations, now
  significantly lower

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Markets Opening Up To Foreign Ownership
Restrictions Eased On Discretionary Basis
Foreign Ownership Ceilings Raised
Majority Foreign Ownership Allowed

Japan Korea Thailand India Malaysia Singapore Ta
iwan

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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

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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
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