As The West Slips, Asia's Outlook Is Bright
As our longer term investors should know by now, there are two things we believe are inevitable, not as surely as the sun will rise, but close enough.
These are: a longer term trend for the weakening of the US dollar against Asian currencies, and the increased spending power of Asian consumers.
To that end, our fund has been - and will continue to be - positioned to benefit from these two major themes.
Given recent events in the US and continuing uncertainty over outlook for the US economy, the former theme is probably not a major contentious issue.
It has, however, been a little more difficult to pin down the latter theme with more than anecdotal and outdated macro data, until now that is.
Financial services company CLSA recently ran a series of surveys across the region - one of the most comprehensive ever of Asian middle class spending behaviours.
This opened our eyes to some interesting facts and certainly fully supports our view on rising spending power in Asia.
This is what CLSA's Head of Broking, Jonathan Slone says:
"Old measures such as per capita and household income are no longer the best yardsticks to understand economic behaviour.
In many economies, home ownership is high and debt low.
Rising asset prices mean that consumer spending patterns are far in advance of what would be expected simply taking income into account.
"Access to education and advances in communication have propelled the region's populations into a middle-class workforce where national boundaries are less relevant to lifestyle and choice than they have been in the past.
"Middle-class expectations in Cincinnati, Frankfurt, Shanghai or Mumbai are rapidly converging.
It is now comfortably within reach to be able to get hold of the money to buy a home, drive a car, educate the kids, travel abroad and save enough money to retire happily.
"Asians are having fewer kids, have more discretionary income, and are more international in their consumer choices."
Household incomes for Mr & Mrs Asia have risen but vary significantly, depending on where they live.
Real per-capita income has more than doubled in China, and has risen by 55% in India over the past 10 years.
But household income is up barely 10% in Indonesia and Thailand.
The varying macro-economic backdrop affects consumption patterns, with momentum in China and India generally ahead of other countries.
Rising income, and a more modern lifestyle, older marriage age, higher divorce rates and generally lower fertility rates for women means that growth in the size of the labour force is expected to slow dramatically over the next decade.
In general, there is greater optimism about the future.
That is particularly so in India where 63% of respondents expect incomes to rise over the next 12 months (compared with 50% who have seen it go up in the preceding year).
The Philippines, too, is optimistic.
Some 44% of households expect their incomes to rise but only 27% saw it go up in the past year.
63% of households in India expect income to rise in next 12 months
63% of households in India expect income to rise in next 12 months
There is greatest caution however in Taiwan where 29% of the households report an increase in income over the past 12 months, but only 18% believe incomes will go up over the coming year.
Rising income levels, combined with increasing confidence about the future, are likely to propel an increase in spending by households.
The evidence over the past 10 years indicates that consumption growth has been phenomenal in those countries with the highest GDP growth rates that have come from the lower income levels.
To conclude, there is still a lot of room for Asia's consumer to leverage up.
That applies not only from the point of view of mortgages, but also from consumer credit point of view, whether through direct personal loans or through credit card spending.
Rising disposal income inevitably leads to more discerning purchases and that means consumers shifting attention from price to quality.
The low level of share ownership will also provide some structural shift in valuations as more investors become interested in investing in the stock market.
Especially as their total net worth is bolstered by a rise in other asset values.
These are: a longer term trend for the weakening of the US dollar against Asian currencies, and the increased spending power of Asian consumers.
To that end, our fund has been - and will continue to be - positioned to benefit from these two major themes.
Given recent events in the US and continuing uncertainty over outlook for the US economy, the former theme is probably not a major contentious issue.
It has, however, been a little more difficult to pin down the latter theme with more than anecdotal and outdated macro data, until now that is.
Financial services company CLSA recently ran a series of surveys across the region - one of the most comprehensive ever of Asian middle class spending behaviours.
This opened our eyes to some interesting facts and certainly fully supports our view on rising spending power in Asia.
This is what CLSA's Head of Broking, Jonathan Slone says:
"Old measures such as per capita and household income are no longer the best yardsticks to understand economic behaviour.
In many economies, home ownership is high and debt low.
Rising asset prices mean that consumer spending patterns are far in advance of what would be expected simply taking income into account.
"Access to education and advances in communication have propelled the region's populations into a middle-class workforce where national boundaries are less relevant to lifestyle and choice than they have been in the past.
"Middle-class expectations in Cincinnati, Frankfurt, Shanghai or Mumbai are rapidly converging.
It is now comfortably within reach to be able to get hold of the money to buy a home, drive a car, educate the kids, travel abroad and save enough money to retire happily.
"Asians are having fewer kids, have more discretionary income, and are more international in their consumer choices."
Household incomes for Mr & Mrs Asia have risen but vary significantly, depending on where they live.
Real per-capita income has more than doubled in China, and has risen by 55% in India over the past 10 years.
But household income is up barely 10% in Indonesia and Thailand.
The varying macro-economic backdrop affects consumption patterns, with momentum in China and India generally ahead of other countries.
Rising income, and a more modern lifestyle, older marriage age, higher divorce rates and generally lower fertility rates for women means that growth in the size of the labour force is expected to slow dramatically over the next decade.
In general, there is greater optimism about the future.
That is particularly so in India where 63% of respondents expect incomes to rise over the next 12 months (compared with 50% who have seen it go up in the preceding year).
The Philippines, too, is optimistic.
Some 44% of households expect their incomes to rise but only 27% saw it go up in the past year.
63% of households in India expect income to rise in next 12 months
63% of households in India expect income to rise in next 12 months
There is greatest caution however in Taiwan where 29% of the households report an increase in income over the past 12 months, but only 18% believe incomes will go up over the coming year.
Rising income levels, combined with increasing confidence about the future, are likely to propel an increase in spending by households.
The evidence over the past 10 years indicates that consumption growth has been phenomenal in those countries with the highest GDP growth rates that have come from the lower income levels.
To conclude, there is still a lot of room for Asia's consumer to leverage up.
That applies not only from the point of view of mortgages, but also from consumer credit point of view, whether through direct personal loans or through credit card spending.
Rising disposal income inevitably leads to more discerning purchases and that means consumers shifting attention from price to quality.
The low level of share ownership will also provide some structural shift in valuations as more investors become interested in investing in the stock market.
Especially as their total net worth is bolstered by a rise in other asset values.
posted by Kenneth | 12:21 PM
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