Transcript
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Speaker: Welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, Chief Asia Economist at HSBC, and I'm joined as usual by our Head of Asian Equity Strategy, Harold van der Linde.
Speaker: Indeed, Fred.
Speaker: We're both in Europe this week, I believe I'm in Paris, and I believe you're in Switzerland.
Speaker: Is that correct?
Speaker: That's right.
Speaker: I just arrived in Switzerland to talk to some clients here and catching the tail end of a beautiful summer here in the Alpine country.
Speaker: How are things in Paris?
Speaker: Paris also, beautiful tail end of a summer, a bit fresh in the morning, beautiful day.
Speaker: But yeah, I'm packed with meetings, so it's not that I can walk around town a lot these days.
Speaker: But we're here today to talk about Asia and specifically Asian wealth, where it comes from, how it's growing versus other parts of the world, and crucially, how it brings an element of resilience to the region.
Speaker: That's right.
Speaker: We'll also be exploring investment themes that fit into Asia's rising wealth.
Speaker: And with that, let's find ourselves a spot under the banyan tree.
Speaker: So in this week's podcast, we're going to look at Asia's rising wealth.
Speaker: Now, we've spoken about this before in a previous podcast when we discussed Asian demographics.
Speaker: Why is that the case?
Speaker: Well, Asia, and in particular North Asia, is ageing.
Speaker: And turns out older people have more wealth than younger people.
Speaker: Makes sense, right?
Speaker: You have more time to accumulate savings over your career.
Speaker: And therefore, in North Asia, where most people are aging, you see actually that wealth is being accumulated.
Speaker: And that's really important.
Speaker: It's a big thing.
Speaker: It's a big growing industry.
Speaker: So we need to take a close look at this particular matter.
Speaker: Well, Harold, you've done a lot of work on this topic.
Speaker: Remind us what sort of the main thrust of the conclusions that you've drawn?
Speaker: What we've done in the past is to look at the structure of populations across Asia for each country.
Speaker: So how many, say, 20 year olds there are, how many 45 year olds there are, how many 70 year olds there are.
Speaker: And you know that 20 year olds and 75 year olds, they don't save a lot.
Speaker: But the 40 year olds, they do.
Speaker: So if you know how many people there are, you can actually make some calculations and projections on how much wealth is being accumulated across the region.
Speaker: And it turns out until 2050, that is quite a big number.
Speaker: And in particular, in North Asia, China, Korea, Taiwan, but also Indonesia and India, there's a lot of wealth being generated.
Speaker: But I believe, Fred, that you've done something quite recently as well.
Speaker: And when you talk about Asia wealth, you often refer to financial wealth and individual wealth.
Speaker: Can you explain a little bit how you approached it and why you make that particular difference?
Speaker: Well, one way to look at financial wealth is just to look at how much financial wealth individual economies accumulate over the years.
Speaker: And not surprisingly, because Asia is growing very fast, the accumulation rate has been quite rapid as well.
Speaker: So since 2006,
Speaker: Asian financial wealth has actually tripled to 140 trillion US dollars, and that includes the entire region and Japan.
Speaker: If you exclude Japan, then by 2025, actually financial wealth in emerging Asia will exceed financial wealth in the United States.
Speaker: That really puts things into context and shows how much wealth has been accumulated and will continue to accumulate across the region.
Speaker: with mainland China probably holding the lion's share here, accounting for about 46% of the financial wealth in emerging Asia by the end of this decade.
Speaker: So if you talk about financial wealth, you talk from an economics point of view, that seems to be a big number.
Speaker: So what does that include?
Speaker: Does it include property and gold and other things that people have saved?
Speaker: So when we look at financial wealth on a national basis, we really
Speaker: look at equity markets, we look at bond markets, we look at the holdings of deposits in banks.
Speaker: So this is the totality of financial wealth in an economy and it's ultimately owned by households.
Speaker: And it gives us a sense of the size of the financial sector in an economy and that's really defined as financial wealth.
Speaker: On a national basis we don't really include
Speaker: real estate, because that is much trickier to value on a national basis.
Speaker: So financial wealth is really the direct financial holdings that households hold in an individual economy.
Speaker: Okay, so we know that that is big, that's growing.
Speaker: And as you said, that's bigger than what it is in the US.
Speaker: But if we're talking about wealth, we're very often talking about individuals, right?
Speaker: What do we own?
Speaker: And how many millionaires are there and things like that.
Speaker: And I believe you've looked at that as well.
Speaker: That's right.
Speaker: And actually here, when we look at individuals holdings of wealth, we actually add real estate in because we have better numbers for that.
Speaker: And so we make some projections.
Speaker: We look, for example, at the number of adults that have financial wealth that exceed 250,000 US dollars, so a quarter of a million.
Speaker: And if you look in the economy like mainland China, for example,
Speaker: That number is expected to double to 350 million adults by the end of this decade.
Speaker: So a sizable number of people will have financial wealth and real estate wealth that would exceed about a quarter million.
Speaker: India is another interesting one.
Speaker: Here by the end of the decade, we'll have about 60 million people who have financial wealth that exceeds 250,000.
Speaker: But we often get asked, well, what about the number of millionaires in an economy if we
Speaker: kind of look at the number of millionaires across emerging Asia, that will rise from about 30 million currently to about 76 million by the end of the decade.
Speaker: So here too, a vast accumulation of wealth, both at sort of the middle class level, but also of course at the top end of the income spectrum.
Speaker: This chimes very well with some of the other topics that we've discussed in previous podcasts.
Speaker: For example, the rise of Chinese empty nesters, right?
Speaker: There's a lot of people
Speaker: who are in their 40s and 50s have done very well and accumulated wealth and assets over time.
Speaker: And that seems to come back into some of the numbers that you have projected here.
Speaker: Yeah.
Speaker: And in fact, it's not just about increase in financial wealth, of course, but it also signifies an increase in discretionary spending.
Speaker: So as people become a bit more affluent, they tend to spend not just on their life's necessities, but also on discretionary spending.
Speaker: And so that's where you see then
Speaker: that's the rise in wealth is correlated with a change in spending patterns in individual economies.
Speaker: But of course, there are other implications as well.
Speaker: And when we turn back to financial implications, I think, Harold, you had looked at sort of the rise of the retail investor in Asia.
Speaker: That's, of course, tied to the rise in personal wealth.
Speaker: Well, let's look at the implications for this, for economies and markets in more details after
Speaker: a quick break.
Speaker: But first, we want to remind you that HBC's Global Emerging Markets Forum begins next week.
Speaker: It's taken place online from the 13th to the 30th of September and features policymakers, thought leaders, corporates and our own experts from global research, all of whom will be sharing their views on the outlook for emerging markets.
Speaker: If you're interested in attending, please contact your local HBC representative for more details.
Speaker: Well, Harold, you've done a lot of work on the implications of the rise of wealth in Asia.
Speaker: And I think one of the things you pointed out was the rise of the retail investor.
Speaker: What's going on here?
Speaker: Yeah.
Speaker: So as Asians accumulate wealth, they have to invest that.
Speaker: Part of that will go into equity markets.
Speaker: It could be that they do that themselves.
Speaker: You buy stocks yourself or you buy a fund or an ETF or something like that.
Speaker: And what we've seen over the last couple of years is a growing growth
Speaker: participation of retail investors, local retail investors.
Speaker: For example, in North Asia, that was already quite high.
Speaker: But for example, in Korea, retail investors accounted last year for up to 70 to 75 percent of all the trading in the markets.
Speaker: So they are the dominant player in these markets.
Speaker: And while it's been quite big in Korea over the last couple of years, we've also seen this now happening in India, in Thailand in the last few years.
Speaker: where suddenly the retail investor has started to emerge.
Speaker: And more recently, one of the markets where this has become a big theme is Indonesia.
Speaker: So there's a lot of Indonesians that are now playing in stock markets as well.
Speaker: And that changes the dynamics and the nature of these markets because these investors are sometimes willing to go deeper in markets or more acquainted with some of the smaller and mid-cap stocks in these markets.
Speaker: So it changes the way these markets function.
Speaker: And give us a bit of context here.
Speaker: In the US, for example, there's been a lot of retail participation over the years already.
Speaker: Is Asia catching up to the US?
Speaker: Actually, in some Asian markets, do we see even more retail participation than you see in the US market?
Speaker: Yeah, I think it is in Asia, in some of these markets, higher than what it is in the US.
Speaker: The exception in Asia, by the way, is China, because retail investors have always been big in China.
Speaker: And in particular, foreign institutional investors have only more recently been able to get a foothold in this market.
Speaker: So they are not really prominent in that market yet.
Speaker: And when we think about sort of the rise of personal wealth, that presumably also entails an entire industry that helps to manage that wealth.
Speaker: What are the implications here?
Speaker: Yeah, so as we mentioned from the very beginning, the accumulation of wealth over the next decade in Asia is going to be quite strong.
Speaker: It's a growing industry and there's all sorts of companies that could benefit from this.
Speaker: Think about insurance companies that can sell saving products to their customers.
Speaker: Think about banks who do this.
Speaker: Think about brokers.
Speaker: stockbrokers that will have to execute those trades and can see their businesses grow.
Speaker: But also, lastly, we have some stock exchanges that are listed in the region, and they will benefit from this increased liquidity and increased trading as well.
Speaker: But Fred, those are some of the more kind of equity-specific or micro-implications.
Speaker: There must be some really bigger macro-implications as well.
Speaker: I'm just thinking, for example, for the impact on the capital account.
Speaker: Have you thought about that?
Speaker: Yeah, in many ways, the rise of Asian wealth, if we term it that way, that the financial debt really helps to provide a degree of resilience to Asian financial markets.
Speaker: So as we save more in the region, we have more resources to invest, and we're not as reliant as before on capital inflows from other parts of the world.
Speaker: And that means that we're less kind of sensitive to international capital flows.
Speaker: We have more
Speaker: resilient foreign exchange rates.
Speaker: We have more resilient domestic financial markets as a result.
Speaker: So financial debt, as it's termed in economics, really provides that degree of resilience that I think is a key element here.
Speaker: And we've seen it really play out during the pandemic because in many ways, yes, financial markets are volatile, but the rise of interest rates in the U.S., for example, now because of the sharp rise in inflation,
Speaker: hasn't had that overly disruptive impact on many emerging markets in Asia because, in part, because we've seen that increase in financial debt domestically, which provides that resilience.
Speaker: But, Harold, I think we should also point out possibly that we're not just talking here about the rise of private bankers and millionaires and the rise of wealth.
Speaker: It really is a much broader argument we are making, which is that
Speaker: as economies become more affluent, it's everybody in society really who starts to accumulate wealth.
Speaker: So it's really a much broader definition.
Speaker: It's also the lower middle class, for example, that first acquires a certain cushion, if you will, financial cushion.
Speaker: Is that a fair assessment from your perspective?
Speaker: Absolutely.
Speaker: I mean, I could give you a
Speaker: A very good example of that.
Speaker: I have, for example, my two nephews who are 20-year-olds and they live in Jakarta.
Speaker: Both are avid stock traders these days and really onto the stock market.
Speaker: And the amount of money they plug in is probably maybe $1,000 or $500 sometimes.
Speaker: So it's not that we're talking about millions of dollars that these people invest, but these are small investors.
Speaker: And because the platforms have made markets so accessible, they can trade as well.
Speaker: So that's absolutely right.
Speaker: We're talking about a very broad view on wealth here, not just the very wealthy in Asia.
Speaker: And I think we should probably also add that for all the talk about the rise of wealth and the increase in millionaires across the region, we shouldn't forget also that there are still glaring income and wealth inequalities both within countries and across the region between countries.
Speaker: And that, of course, is something that needs to be addressed.
Speaker: But fortunately, the rise of financial wealth really equips the region with the means to ultimately address rising inequalities.
Speaker: And it's a question of redistribution.
Speaker: It's a question of specific policies to aid societies, poorer members.
Speaker: But certainly the rise of wealth, therefore, is a means to address some of these challenges rather than being seen as an obstacle in itself.
Speaker: Absolutely right.
Speaker: So what we've seen so far, if I can conclude here a little bit, is that Asia's economies are growing.
Speaker: We have demographic and aging that helps the accumulation of wealth as well.
Speaker: People who are older have had more time to accumulate wealth.
Speaker: And we see that this is not only at the very high end in a very wealthy part of the economy, but also in other parts of society.
Speaker: And this has got major implications for how stock markets work, how property markets work, and for companies that operate in Asia and somehow get in touch with those Asians that are accumulating wealth.
Speaker: And with that, I think we should move on to our usual last part of the podcast in which we're going to discuss what other things we are reading or thinking about while we're traveling.
Speaker: So, Harold, you've been on the road now for several weeks.
Speaker: What's keeping you occupied?
Speaker: Well, anybody who's been listening to this podcast knows that I am reading about Asian and particularly Indonesian history of the 14th century of the Majapahit Empire.
Speaker: So one of the archaeologists that I met on a recent trip to visit some temples emailed me and said that a new translation of a 14th century
Speaker: work has been published by actually by himself and an Australian based linguist.
Speaker: So I was able to get a copy of that new book.
Speaker: And it's something that I'm going to enjoy reading while I'm probably on a plane or on the train over the next couple of weeks.
Speaker: OK, and what's it about?
Speaker: It's actually about a tour that somebody makes in eastern Java around 1360s.
Speaker: It's a bit kind of repetitive at the beginning.
Speaker: Then I went to this village and then I went to that village.
Speaker: But what is interesting is he meets people, he eats stuff, he travels by horse, there are elephants around.
Speaker: So you get a little bit of a feeling of how life looked like in those villages in those days.
Speaker: And that's what I enjoy the most.
Speaker: But that's what I'm reading.
Speaker: Fred, what is keeping you busy?
Speaker: Well, as I mentioned, Harold, I'm currently in Switzerland and I always like to
Speaker: look for the connections between really the countries I'm traveling in with Asia.
Speaker: And here actually in Switzerland, it's quite interesting.
Speaker: The Swiss really have very close ties with both the Nepalese and the Bhutanese people.
Speaker: Traditionally already for decades, they've engaged in development work, they've provided support.
Speaker: And there's a big, big community in Switzerland of Bhutanese and Nepalese.
Speaker: And in fact, I ate at a Bhutanese restaurant in Zurich
Speaker: yesterday.
Speaker: And that connection comes from, in part, because of that kind of affinity to living in the mountains, the challenges that come with us.
Speaker: So I thought that was sort of a neat connection between the Alpine peoples.
Speaker: Yeah, no, I can very much see that.
Speaker: I've traveled through Bhutan in, what is it, maybe 10 years ago.
Speaker: And what struck me is that actually the architecture in Bhutan is not dissimilar than the architecture you see in the Alps.
Speaker: stone houses with the wooden tops and wood carvings.
Speaker: So I can see that there is a very strong connection there.
Speaker: Yeah, it's a way of life.
Speaker: You know, living in the mountains is tough.
Speaker: And so I think that there is therefore this affinity between both Switzerland and people who live in high altitudes elsewhere in the world.
Speaker: Well, Fred,
Speaker: I got a dash here.
Speaker: I got client meetings coming up.
Speaker: So I would suggest that we're going to meet again next week under the Banyan tree and talk about something else that is happening in Asia.
Speaker: That's a good idea.
Speaker: See you again next week under the Banyan tree, Harold.
Speaker: Good travels.
Speaker: See you, Fred.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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