asian economic overview. dave perrett regional strategist ppm asia 15th nov, 2000

Asian Economic Overview


Dave PerrettRegional StrategistPPM 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

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


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 £



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




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


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

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

1992

100

80

60

40

20

0

(20) 1993 1994 1995 1996 1997 1998 1999

Equity flows Debt funding

£ bn

9


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


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

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


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



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

Prospects For Regional Savings Market


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


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


Urban Population Increasing

60

50

40

30

20

10

0Thai

1980 1998

PhilKorea China Malay

% of total population



Urban Workers’ Incomes Significantly Higher Than Rural Counterparts

ChinaRural

India

220

493

166

806

Urban

£ per year

20Source: World Bank and UBSW 1995-1999


Population Becoming Better Educated

Thai

1980 1997

% Attending secondary school

MalayIndo IndiaChina

70

60

50

40

30

20

10

0



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


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

Prospects For Foreign Owned Savings Institutions


Low Current Foreign Providers Market Share

Domestic

Indo Japan Korea Thai

88

98 98 95

122 2 5

Foreign

%

25Source: Credit Suisse First Boston


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


Restrictions Eased On DiscretionaryBasis

Foreign Ownership Ceilings Raised

Majority ForeignOwnershipAllowed

Markets Opening Up To Foreign Ownership

Japan

Korea

Thailand

India

Malaysia

Singapore

Taiwan

27


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


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

asian economic overview. dave perrett regional strategist ppm asia 15th nov, 2000

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