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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. Regional Overview. 7x US.

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Asian Economic Overview

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  1. Asian Economic Overview Dave Perrett Regional Strategist PPM Asia 15th Nov, 2000

  2. Content • Regional overview • The Asian Crisis • Medium term growth outlook • Prospects for the regional savings market • Opportunities for foreign owned institutions • Summary 1

  3. Regional Overview

  4. 7x US UK + France + Germany 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 3 Asian Economic Overview

  5. 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

  6. 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

  7. Young Population In Less Developed Economies % of population under 24 years old 58 53 53 51 43 41 35 31 28 Japan UK US China Thai Malay Phil Indo India Source: US Census Bureau and International Data Base 6

  8. 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 7

  9. The Asian Crisis

  10. 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 100806040200(20) 1992 1993 1994 1995 1996 1997 1998 1999 Equity flows Debt funding 9

  11. 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

  12. 1997 1998 1999 2000 The Recovery Real GDP growth 1997 - 2000 % • Large trade surpluses and low asset prices lead to currency stability • V-shaped recovery in 1999 and 2000 151050-5-10-15 Singapore Thailand Indonesia Korea Japan 11

  13. Post Crisis - Medium Term Outlook

  14. 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

  15. 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 Malay Sing Taiwan China Thai HK Korea Asia has weathered many crises in past 30 years and still produced high average GDP growth rates Source: World Bank and UBSW 14

  16. 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 Thailand 5.0 Vietnam 6.0 Source: PPM Asia 15

  17. Prospects For Regional Savings Market

  18. 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

  19. Pre And Post Crisis Fiscal Deficits % of GDP 210-1-2-3-4-5-6-7-8 Thai India Japan 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 18

  20. Urban Population Increasing % of total population 6050403020100 Thai Korea China Malay Phil 1980 1998 Source: World Bank and UBSW 19

  21. 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 20

  22. Population Becoming Better Educated % Attending secondary school 706050403020100 Malay China Indo India Thai 1980 1997 Source: World Bank and UBSW 21

  23. 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

  24. Asia: Preference For Low Risk % Distribution of personal savings by asset class 100 80 60 40 20 0 Asia United States Pension Mutual Fund Insurance Deposits Source: McKinsey 1998 23

  25. Prospects For Foreign Owned Savings Institutions

  26. 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 25

  27. 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

  28. 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 Taiwan 27

  29. 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

  30. 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

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