Rising incomes, changing demographics, a high savings rate, and the changing psychology of Asian consumers could ignite an unprecedented consumption boom in Asia that will be more robust than the consensus outlook, according to a report by Newton, a London-based investment boutique of BNY Mellon Asset Management.
“There are 500 million individuals rapidly moving up the income curve with aspirations to spend more on products and services ranging from low-end staples, such as diapers, to luxury goods such as designer clothes and luxury cars,” says Jason Pidcock, investment leader of Asian equities for Newton, who authored the report. “Rising earnings, wealth levels and confidence in the economic outlook are contributing to the declining savings rates and higher consumption.”
The Newton report notes that changing population dynamics will be a key driver of rising consumption. China, for example, now has a much lower percentage of the population in the very young age brackets than it did in the 1980s, resulting in a lower percentage of the population who are financially dependent on those in the prime working ages, according to the report.
This low dependency ratio will enable Chinese workers to spend more of their earnings on discretionary consumption, the report notes. Chinese government programs for healthcare and social housing are creating a safety net for the population, which also is expected to lower the requirement for the high savings rate in the country and freeing up more money for discretionary purchases, according to Newton.
“Having already seen the impact of China’s productive power over the last decade, we believe the world now will begin to feel the force of its consumptive power, especially as the vast population in the rest of the region follows China’s lead up the income and consumption curves,” says Pidcock.
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