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Asian consumers have benefited from their countries' robust economic growth as rising incomes have allowed them to attain higher standards of living and an improved lifestyle. As Asian economies are projected to continue experiencing robust growth, consumer spending is envisaged to remain strong in the years ahead.
Consumer spending generally accounts for a significant share of gross domestic product (GDP) in most economies. This is no different in Asia where consumer spending accounts for about half of GDP. In the 2001-2006 period, consumer spending in Indonesia and China grew at healthy annual rates of 13.6 percent and 10.4 percent respectively on the back of rising income and urbanisation.
Meanwhile, South Korea, Malaysia and ThailandÕs consumer spending growth were also impressive at around 9.0 percent - 9.5 percent per annum, backed by strong consumer confidence amidst generally buoyant economic activities. However, the growth of consumer spending in other regional economies such as Singapore, Hong Kong and Taiwan were more moderate.
Factors Propelling Growth in Consumer Spending
In the Far-East region, consumer spending has been fuelled by robust growth in disposable incomes, the wealth effect from rising equity and property markets, increased urbanisation, healthy tourism activities and attractive lending rates.
Higher Disposable Income
Consumer spending in Asia has grown in tandem with rising GDP per capita in recent years. China's GDP per capita grew at 13.4 percent p.a. over the 2001 - 2006 period on the back of surging economic growth while Indonesia registered impressive GDP per capita growth of 12.6 percent p.a. over the same period, supported by easier monetary conditions and rising urbanisation. South Korea, Malaysia and Thailand also recorded solid GDP per capita growth of between 6.6 percent and 9.1 percent backed by strong export earnings and healthy business environment. In comparison, the increase in GDP per capita in Singapore and Hong Kong was more moderate given their high base. With increasing prosperity, GDP per capita is expected to continue growing at a healthy pace in the years ahead.
Wealth Effect From Rising Equity and Property Markets
Rising equity and property prices were also major drivers of Asia's consumer spending. The uptrend in stock markets coupled with rising property prices in the last few years have generated positive wealth effects and spurred spending on consumer products and services.
Increased Urbanisation
With workers migrating to the cities in search of better job prospects, selected countries in Asia have also experienced a rising trend in urbanisation. As a result, consumer spending has increased as people obtain higher paying jobs in the cities. For instance, the urban population ratio in China increased from 27.4 percent in 1990 to 40.5 percent in 2005. This resulted in a surge in consumer spending as income levels of city workers in China are three times higher compared to rural workers. In Indonesia, the urbanisation ratio increased from 30.6 percent to 47.9 percent over the same period. The rising urbanisation trend in these two countries with a total population of around 1.5 billion is expected to be sustained as their urbanisation ratios are still relatively low compared to the more developed countries in the region.Healthy Tourism Activities
Rising affluence in the Far-East region has spurred travel activities which also contributed towards the growth in consumer spending. Singapore and Thailand are major beneficiaries of a thriving tourism sector while more recently, Hong Kong and Macau have benefited from China's rising affluence with mainland tourists accounting for more than half of tourist arrivals in these cities. Following the liberalisation of gaming laws and an influx of new luxury hotels, gaming revenue in Macau reached US$7.2 billion1 in 2006, which exceeded Las Vegas' gaming revenue.
Furthermore, a steady inflow of expatriates and skilled migrants attracted by the open employment policies of Singapore and Hong Kong have also contributed to robust consumer spending in these countries. Young Population and Workforce Consumer spending in countries such as Malaysia, Indonesia and the Philippines will also experience strong growth in the years ahead as about half of the population in these countries is below 25 years of age compared to one-third in the U.S. and Europe. As more young people join the workforce in these countries, they will contribute to consumer spending in the coming years. In addition, the growing participation of Asian women in the workforce has enhanced household incomes and further propelled consumer spending.
In tandem with rising affluence and a young population, Asian consumers have increasingly adopted a broad range of Western lifestyles such as fast food consumption, haute cuisine and fashion. Upper middle class consumers in Asia are striving to attain a quality lifestyle through brand-conscious spending. Thus, demand for luxury Western brands (for example, Gucci, Louis Vuitton, Rolex and Cartier) is growing throughout Asia's bustling cosmopolitan cities. The global luxury goods market is estimated to be worth US$80 billion a year. China is projected by Goldman Sachs to be the second largest consumer of luxury goods by 2015, second to Japan. Supported by a middle class population of around 250 million, China is estimated to have spent US$6 billion2 on luxury goods in 2006. Retail spending growth in China accelerated from 13.7 percent in 2006 to 16.3 percent in the first 10 months of 2007.
Prospects for Consumer Stocks
Given the positive demographic factors and rising affluence of the population base in the Far-East region, the outlook for consumer stocks is promising as growing consumer spending will benefit companies in the consumer sector. These companies include companies involved in the food, beverage, tobacco, household goods, fashion, textiles, apparel, footwear, and consumer electronics and appliances industries.
The services segment within the consumer sector includes companies in retailing, restaurants, services and leisure industries. Looking ahead, consumer stocks are expected to enjoy solid growth prospects given the strong economic outlook for Far-East economies. China's GDP growth is projected to sustain at 11.2 percent in 2007 and 10.6 percent in 2008 compared to 11.1 percent in 2006, while Hong Kong's economy is expected to grow at 6.0 percent and 5.2 percent for 2007 and 2008 respectively amid resilient consumer demand and robust mainland tourist arrivals.
Meanwhile, GDP growth for South Korea and Taiwan are also projected to be sustained at around 4.0 percent to 5.0 percent for 2007 and 2008 respectively amidst resilient investment spending and recovery of global demand for exports.
In the ASEAN region, domestic demand will be the major driver of economic growth. Singapore's economy is expected to expand at 7.4 percent in 2007 and 6.3 percent in 2008 driven by a booming construction sector. Malaysia's GDP growth is envisaged to sustain at about 6 percent in 2007 and 2008 while GDP growth for Indonesia is expected to accelerate from 6.5 percent in 2007 and 7.0 percent in 2008 on the back of firm commodities prices and resilient domestic demand.
Overall, Far-East Asian economies have benefited from accommodative monetary policies with interest rates kept attractively low for consumers. Thus, affordable lending rates coupled with easy availability of credit are conducive for consumer spending and economic growth. Credit card-based spending in the Far-East region is expected to trend higher, especially in emerging markets such as China where credit card usage is still relatively low.
Investors can participate in the long term-growth prospects of consumer stocks by investing in consumer sector funds. To capitalise on the robust growth of consumer spending in the Far-East region, consumer sector funds will focus their investments in companies engaged in products ranging from food, clothing, electrical appliances to services such as retailing, hotels and leisure.Disclaimer: Reading materials in this site are obtained from its respective website and it is for information purposes only. It is not Malaysia Unit Trusts - administrator view and it is not to be used against Malaysia Unit Trusts - administrator.
