asian economic overview. dave perrett regional strategist ppm asia 15th nov, 2000
TRANSCRIPT
Asian Economic Overview
Content
Regional overview The Asian Crisis Medium term growth outlook Prospects for the regional savings
market Opportunities for foreign owned
institutions Summary
1
A Diverse And Highly Populated Continent
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
Population m
7x US7x US
UK + France + Germany
UK + France + Germany
3Source: World Bank and UBSW
Asian Economic Overview
Large Differences In Relative Wealth
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
GDP per head £
4Source: World Bank and UBSW
Asian Economic Overview
Wealth Concentrated In Small Proportion Of Population
Malaysia 54
Singapore 49
Thailand 48
China 47
India 46
Indonesia 45
S. Korea 39
% share of consumption by
top 20% of pop’n
5Source: World Bank and UBSW
Asian Economic Overview
Asian Economic Overview
Young Population In Less Developed Economies
Japan UK US Thai India PhilChina Indo Malay
% of population under 24 years old
2831
35
41 43
5153
5853
6Source: US Census Bureau and International Data Base
Asian Economic Overview
SingUS India Taiwan HK ThaiJapan Korea Malay
1922
2628 30
3336
38
51
Savings as a % of GDP
High Asian Propensity To Save
7Source: Asia Development Bank and UBSW
Asian Economic Overview
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
1992
100
80
60
40
20
0
(20) 1993 1994 1995 1996 1997 1998 1999
Equity flows Debt funding
£ bn
9
Asian Economic Overview
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
The Crisis
10
Asian Economic Overview
Large trade surpluses and low asset prices lead to currency stability
V-shaped recovery in 1999 and 2000
The RecoveryReal GDP growth 1997 - 2000
1997 1998 1999 2000
11
Japan Singapore Thailand Indonesia Korea
%15
10
5
0
-5
-10
-15
Asian Economic Overview
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
Asia has weathered many crises in past 30 years and still produced high average GDP growth rates
Japan Phil India Indo Thai HK Malay Korea Sing Taiwan China
3.3 3.5
4.9
5.96.5 6.6 6.9
7.68.0 8.1
8.6% 1971-1999
14Source: World Bank and UBSW
Asian Economic Overview
Medium Term Growth Forecasts Impressive By Global Standards
Country GDP %China 7.0 Hong Kong 4.0India 6.0 Indonesia 5.5 Japan 2.0 Korea 5.5Malaysia 5.5 Philippines 5.0Singapore 5.0Taiwan 5.5Thailand 5.0Vietnam 6.0
15Source: PPM Asia
Asian Economic Overview
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
Overview Of Key Drivers For Savings
17
Asian Economic Overview
Pre And Post Crisis Fiscal Deficits
Japan ThaiIndia Korea1996 2000
Malay
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
210
-1-2-3-4-5-6-7-8
% of GDP
Asian Economic Overview
Urban Population Increasing
60
50
40
30
20
10
0Thai
1980 1998
PhilKorea China Malay
% of total population
19Source: World Bank and UBSW
Asian Economic Overview
Urban Workers’ Incomes Significantly Higher Than Rural Counterparts
ChinaRural
India
220
493
166
806
Urban
£ per year
20Source: World Bank and UBSW 1995-1999
Asian Economic Overview
Population Becoming Better Educated
Thai
1980 1997
% Attending secondary school
MalayIndo IndiaChina
70
60
50
40
30
20
10
0
21Source: World Bank and UBSW
Asian Economic Overview
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
Increasing Consumer Sophistication In Savings Market
22
Widespread change in savings habits likely across region
Asian Economic Overview
Asia: Preference For Low Risk
100
80
60
40
20
0Asia United States
23
% Distribution of personal savings by asset class
Source: McKinsey 1998
Pension Mutual Fund DepositsInsurance
Asian Economic Overview
Low Current Foreign Providers Market Share
Domestic
Indo Japan Korea Thai
88
98 98 95
122 2 5
Foreign
%
25Source: Credit Suisse First Boston
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
Restrictions Eased On DiscretionaryBasis
Foreign Ownership Ceilings Raised
Majority ForeignOwnershipAllowed
Markets Opening Up To Foreign Ownership
Japan
Korea
Thailand
India
Malaysia
Singapore
Taiwan
27
Asian Economic Overview
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
Opportunities For Foreign Owned Financial Institutions
28
Asian Economic Overview
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
Summary
Fundamentals for growth remain strong with excellent prospects for foreign owned RFS players
29