1. The New Wealthy in Asia
Prepared for: Financial Summit 2008
Prepared by: Spire Research & Consulting
Date: 15 May 2008
Prepared for: FASAP 2008 Date: 15 May 2008 Page 1

2. Aims of this talk
To describe the rise of the middle class in emerging
Asia – who, where, how much?
To analyze the context for middle class financial
planning
To assess the current state of play in terms of their
assets and financial holdings, and how this will
evolve
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3. In gist
The middle class is a hotly contested label, with
different variations
“Middle income” wealth in emerging Asia is still far
below that of developing countries, but much of the
population and wealth growth is coming from this
region
High savings rates are a function of weak social safety
nets and risk adversity towards medical expenses,
unemployment, etc.
Assets in emerging Asia are primarily are skewed
towards home ownership and bank deposits
As social safety nets develop, and more financial
products become available, more investment will flow
towards equities and fixed income products, while
debt levels will probably rise
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4. Emerging Asia – room to grow
The size of the middle class in emerging economies will be well over 1b
World population growth will be concentrated in
developing countries in the coming decades
In 2030 more than a billion people in developing
countries will buy cars, engage in international
tourism, demand world-class products, and
require international standards for higher
education
Currently, North America owns about a third of
the world’s wealth. Europe has a fraction less
with 30% and Asia-Pacific is close behind at 24%
This looks set to shift in Asia’s favor
Singapore, India and Indonesia are countries
with the world's fastest growing numbers of high
net worth individuals (HWIs)
Other Asian regions that have particularly fast-
growing numbers of wealthy residents are South
Korea and Hong Kong
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5. By 2030, Asia will have >4b people
Asia is still growing rapidly from a low base
World population growth will be concentrated in developing countries in the coming
decades
In 2030 more than a billion people in developing countries will buy cars, engage in
international tourism, demand world-class products, and require international
standards for higher education
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6. By 2030, Asia will have >4b people
Asia is still growing rapidly from a low base
Currently, North America owns about a third of the world’s wealth. Europe has a
fraction less with 30% and Asia-Pacific is close behind at 24%
This looks set to shift in Asia’s favor
Singapore, India and Indonesia are countries with the world's fastest growing
numbers of high net worth individuals (HWIs)
Other Asian regions that have particularly fast-growing numbers of wealthy residents
are South Korea and Hong Kong
Asia’s standing in the world, 2006 data
Region GDP (US$ billions) GDP per head US$ Annual growth 2000-2005
World 44.7 9,480 4.0
Developed
34.1 32,830 2.1
economies
Asia* 4 4,840 7.9
Source: EIU based on IMF data
*Note: Asia excludes Japan, Hong Kong, Singapore, Taiwan and South Korea
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7. By 2030, Asia will have >4b people
Asia is still growing rapidly from a low base
As a general rule, a per capita annual income of US$5,000 is the threshold level at
which a person in Asia becomes a discretionary spender*
According to national statistics, more than 250 million people in Asia qualify right now – and
the number is expected to surpass 500 million by 2010
GDP in Asia, 2007
GDP per capita GDP
Country
(USD) (milllions of USD)
China 4,644 3,250,827
Hong Kong 39,062 206,707
India 2,469 1,098,945
Indonesia 3,454 432,944
S. Korea 22,988 957,053
Malaysia 12,536 148,940
Philippines 3,153 144,129
Singapore 44,707 161,349
Thailand 7,599 245,659
Vietnam 2,363 70,022
Japan 31,947 4,383,762
Sources: World Bank, IMF
*Yiannis G. Mostrous, Elliott H. Gue, Ivan D. Martchev , “Silk Road to Riches, The: How You Can Profit by Investing in Asia's Newfound Prosperity”, 27 Mar
2006
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8. Fundamentals of Demand Growth
Asia-Pacific growth looks sustainable
Definition of middle-class: People at or above the equivalent of US$10 a day in 2005
and at or below the 90th percentile of the income distribution in their own country*
By 2030,1.3 billion in developing countries (15% of the world population) will belong
the global middle class, up from 400 million in 2005. Families of four in that class earn
between US$16,000 and US$68,000 in PPP dollars
This global middle class will participate actively in the marketplace, demand
world-class products and aspire to international standards of higher education –
they would be able to purchase automobiles, consumer durables and travel abroad
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9. Asia’s Rising Middle Class
Sharp increase in East Asia & the Pacific
Definition of middle-class: People at or above the
equivalent of US$10 a day in 2005 and at or below
Population in low- and middle-income
the 90th percentile of the income distribution in countries earning US$4,000 – US$17,000
their own country* per capita (PPP)
By 2030,1.3 billion in developing countries (15% of
the world population) will belong the global
middle class, up from 400 million in 2005. Families
of four in that class earn between US$16,000 and
US$68,000 in PPP dollars
This global middle class will participate actively in
the marketplace, demand world-class products
and aspire to international standards of higher
education – they would be able to purchase
automobiles, consumer durables and travel
abroad
Source: World Bank calculations
* Birdsall, Nancy, ‘The Macroeconomic Foundations of Inclusive Middle-Class Growth’, 2020 Focus Brief on the World’s Poor and Hungry People, December 2007
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10. Higher Incomes in Asia
By 2030, 40% of East Asia/Pacific’s population (>1b) will be in the top 8-10 deciles of
global income distribution, up from 20% now
Population of each region by deciles of global income distribution
Source: The International Bank for Reconstruction and Development / The World Bank, ‘Global Economic Prospects: Managing
the Next Wave of Globalization’
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11. Tourism from Asia’s Middle Class
An indication of wealth
In 2004, 20% of all outbound tourism came from East and South Asia’s middle class
Tourism in 2004
Source: World Tourism Organization
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12. Asia’s High Net Worth Individuals
The world’s High Net Worth Individuals (HNWI) grew to 9.5 million with their assets
rising to US$37.2 trillion in 2006
Asia-Pacific was home to five of the 10 fastest growing markets for HNWIs, including
Singapore, India and Indonesia, where the HNWI populations grew by 21.2%, 20.5%
and 16%, respectively, compared with the global HNWI expansion of 8.3%; Korea
and Hong Kong were also in the top 10 fastest growing markets globally
Source: World Wealth Report 2007, Merrill Source: Capgemini Lorenz curve analysis,
Lynch/Capgemini 2007
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13. Asia’s High Net Worth Individuals
Asia-Pacific HNWI investments
Non-traditional investment products are gaining in popularity as Asian investors seek
better domestic returns and foreign institutions seek involvement in the high-growth
region
Within the region, asset allocation differed significantly from market to market
Australian HNWIs, for example, allocated 37% of their assets to equities, the highest level in
the region
Investors in China and Indonesia also had relatively high equity allocations
Investors in South Korea, on the other hand, allocated the largest percentage of their
portfolios to real estate
Asia-Pacific HNWIs are increasingly looking at internationalizing their investment
portfolios and, over the longer term, re-balancing their asset allocations in favor of
alternative investments, equities and fixed income
In addition, Asia-Pacific HNWIs are increasing their international exposure although still
maintain a very regional portfolio focus
Slightly more than half of Asia-Pacific HNWIs' assets were invested within the region and
slightly more than a quarter of their holdings were allocated to North America
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14. Income Disparity in Asia
Income distribution is worsening
Asian income distribution is has generally been worsening since 1998 and in some
countries (e.g. China) is approaching Latin American levels
Percentage share of income or consumption
Country/Region Year Highest 20% Lowest 20% Gini Index
China 2001 46.6 5.9 44.7
Hong Kong 1996 50.7 5.3 43.4
India 2000 43.3 8.9 32.5
Indonesia 2002 43.3 8.4 34.3
S. Korea 1998 37.5 7.9 31.6
Malaysia 1997 54.3 4.4 49.2
Philippines 2000 52.3 5.4 46.1
Singapore 1998 49 5 42.5
Thailand 2000 50 6.1 43.2
Vietnam 2002 45.4 7.5 37
Japan 1993 35.7 10.6 24.9
Latin America 2000 56.8 3.55 n.a.
Europe* 2000 40.8 7.1 n.a.
U.S. 2000 45.4 5.2 40.8
*UK, Germany, France, Italy.
Source: Economist 2007 Source: World Bank, World Development Indicators 2005
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15. Income Distribution
China and India have the most unequal income distribution
2001 Rising incomes,
especially in India and
% of Total Number of Household
China, points to a
positive outlook for future
consumerism.
Over the last decade,
~1% of India’s poor
graduate to join the
middle-income class
2005 annually.
% of Total Number of Household
• Using home and car
purchases as indicators,
the growth of the Chinese
middle class is said to be
even faster than the
economy’s overall
growth.
US$
Source: Global Market Information Database
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16. Income Distribution
Income distribution in Japan highest among mature economies
2001
Developed countries
% of Total Number of Household
• A growing middle income
segment is also seen in
developed countries.
• Japan has a unique,
egalitarian income
distribution.
• On average, all AP
countries (emerging +
2005
developed) would have
% of Total Number of Household
the top 20% of the
population earning ~45%
of total private income
while the lowest 20% earns
only ~7%.
US$
Source: Global Market Information Database
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17. Asia’s Financial Sector
The middle class in emerging Asia grapples with risk aversity
The tremendous promise for financial planning in Asia
comes from a combination of factors: the blistering
growth of its middle classes, the rapid ageing of its
population against a backdrop of weak social
security nets and a savings rate that far outstrips the
rest of the world
In China, middle class families by one measure
include about 130 million people, and their
purchasing power is close to that of the more
developed Asian economies
The household income for these families surpasses
US$24,000
Economists expect that another 40 million people will join
this group in the next decade
The constraint and opportunity for financial planning
comes from risk aversity among the more broad
middle class segment….
…stemming from concerns over medical expenses, a
relative lack of insurance products, an aging trend and a
small/falling number of children
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18. Marketing Trends
The silver haired (>50 years) population is Asia’s segment of the future
21-24% of the population are aged >50 in China, Korea, Taiwan, Thailand &
Singapore in 2005 (30% in Australia & Hong Kong) – the silver hair segment is
substantial
In AP, 77% of international companies have no silver hair strategy, but one third of
those 77% plan to rectify this in 3-5 years time
Among AP companies, Japan is seen as having the most silver hair potential
followed by China
Asia Pacific’s demographic transformation
Percentage of population
aged 50 and above
100
90
80
70 59
53 57
60 50 52
48
45 46 43 45
50 >40 40 42 38 39
37 33 37
40 30 30 30 31
24 24 28 24
30 22 23 23 21 20
15 16 15
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Source: US Census Bureau 2005 2030 2050
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19. Asia’s Finances
As at 2003, the savings rates in Indonesia (28%), India (22%) and China (16%) are
very high by global standards
Changes in household savings in Asia (1980 – 2000)
Source: World Bank, World Development Indicators
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20. Asia’s Asset Ownership Profile
Asset profiles consist mainly of real property. However, Japan and China have a
higher share of financial assets aside versus real property as compared with India
and Indonesia
In Asia, Japan is the largest contributor to the overall REIT market capitalization with
64% share of the pie. This is followed by Singapore (19%) and Hong Kong (13%)
Asset Composition in Selected Countries
Source: The World Distribution of Household Wealth’, World Institute for Development Economics
Research of the United Nations University
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21. Asia’s Financial Wealth Profile
Financial wealth is mostly held in savings accounts
Savings account feature strongly in transition economies and in rich Asian
economies (Japan, Singapore, Taiwan, and South Korea)
With the exception of Taiwan, Asian countries tend to be conservative when
investing in shares and equities.
Composition of financial wealth in selected developed countries
Source: The World Distribution of Household Wealth’, World Institute for Development Economics Research of
the United Nations University
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22. Asia’s Investment Landscape
Asia accounts for roughly one-third of global GDP in PPP terms, and one-fourth of
global exports, but only 13% of the global equity market.
2004 bank deposits were approximately 180% of GDP in China, 50% in India and 40%
in Indonesia.
Bank heavy
Investments composition
Asia still depends too much on bank financing.
(percent of GDP)
Bank deposits Equity market Bond market
1990 2004 1990 2004 1990 2004
China 75.6 177.8 n.a. 40.3 8.5 29.4
Kong 205.6 299.3 107.2 486.3 1.5 28.3
Kong SAR
India 31.4 51.1 10.4 48.4 19.9 31.7
Indonesia 29.8 38.9 4.4 24.9 0.4 24.1
Japan 100 120.5 121.7 73.2 85.9 181.6
Korea 32.6 68.8 48.2 56.1 34.1 74.9
Malaysia 52.1 88.7 100 152.6 69.8 89.3
Singapore 74.3 104.4 95.8 149 27.8 58.6
Thailand 56.8 79.7 29.2 72.3 9.7 38.9
Germany 53.8 96.7 21.7 42.2 51.6 80.3
United 87.8 115 85.2 123 36.8 43.9
Kingdom
United 59.6 58.8 57.5 131.6 122 157.2
States
Europe 42.1 86.8 52.3 72.1 65.9 88.8
Source: CEIC data; World Bank, FinancialFinancial set (February 2006). (Feb 2006)
Sources:
CEIC data, World Bank, Sector data Sector data set
Note: n.a. denotes not available.
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23. Asia’s Investment Landscape
The bond market in Asia ex-Japan is considerably shallower than in the EU and US –
accounting for only 45% of GDP, half the size of the EU bond markets.
Bond markets of the world
Source: The Art of Reform. Andrew Sheng, Finance & Development, June 2006. Volume 43, Number 2.
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24. Asia’s Consumers Credits
Credit can increase consumption under the most
difficult circumstances
Between 2001 and 2005, the US consumer was able to
spend not because income increased, but because
prices of goods decreased and credit was readily
available
Even the rise in housing prices, which allowed
consumers to borrow against their house value in order
to spend, was the consequence of the Federal
Reserve’s extremely loose monetary policy
The more advanced economies in Asia (for example,
South Korea, Hong Kong, Singapore) have greater
penetration levels than those of less developed ones
like China and India
Credit penetration grows, with complex effects on risk
aversity and financial investment patterns
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25. IT Trends
Page views per user are highest in Korea, Taiwan and Hong KongMortgage
lending has been rising rapidly in the Asian region - most have seen the stock
of real housing credit double since 1999
Growth in the housing lending have been pushed by changes in the housing
lending market, like outright introduction of mortgage products in China,
longer-dated mortgages in Thailand and Korea, and the introduction of private
mortgage insurance in Hong Kong SAR
Housing Loans in Asia (in percent)
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26. The Debt Picture in Asia
Housing loans make up the bulk of debt
Asians tend to feel secure only with a roof over their heads
Korean internet users view the most number of pages (approximately twice as
many pages as the regional average of 2,171 pages per user).
More focused and selective online presence should be employed to reach out
to the Australian, New Zealand and Malaysian consumers as they tend to
dedicate more time to viewing fewer pages.
Online Page Viewing May 2007*
User
Ave Minutes Spent Per Page View Per
6,000 1.00
Ave Monthly Pages Viewed Per
Ave Monthly PAGES Viewed Per User 0.90
Ave Minutes Spent Per Page Viewed Per User
5,000 0.80
4,000 0.70
0.60
3,000 0.50
0.40
2,000 0.30
0.20
1,000
0.10
User
- -
CN IN MY HK JP SG S.KR TW AUS NZ
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27. Considerations on Asia’s wealth management market
Asia-Pacific is the fastest-growing wealth management market in the world
Asia’s middle classes live with risk aversity due to weak social safety nets, an ageing
population and a small number of children
Savings accounts tend to be favored in Asian countries because of risk aversity and
a lack of confidence in financial markets, but this is changing
Debt levels and financial investment in non-bank deposits will certainly grow, in both
cases driven by rising incomes and increasing availability of financial products
The pace of liberalization of investment rules in Asia will remain highly uneven
Asia’s ageing population will increasingly have a positive impact on share market
valuations, as those approaching retirement save more of their incomes, putting
some into equities
With high broadband penetrations and the cultural impact of E-communities, the
internet as a channel, marketing platform and interactivity tool for financial
investment may become critical in Asia, as the Taiwanese example shows
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28. Tel: (65) 6838 5355
Fax: (65) 6838 5855
78 Shenton Way #20-01
Singapore 079120
sg.info@spireresearch.com
www.spireresearch.com
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