The rise of young Asia: how millennials are transforming a region
When many western investors think of Asia, China’s rapidly-ageing population – the result of its one-child policy, which dates back to 1979 – often comes to mind. But as Matthew Dobbs, head of Global Small Cap at Schroders, explains here, there’s a lot more to Asia than China, and wise investors are advised to take a close look at the region’s millions of “millennials”, those aged roughly 20 to 36 years of age.
While it is certainly true that maturing populations will soon be putting pressure on workforces in such countries as China, Korea and Taiwan, to say that Asia has a problem with ageing, or could face such a problem, is to miss the point: which is that there is a huge shift of economic power to a growing, and increasingly wealthy, Asian middle class.
What’s more – and crucially – this group is both young, and at ease with both technology and rapid change.
A recent Deloitte survey found that emerging market millennials were more confident about their economic prospects, and expected to be materially and emotionally better off than their parents, in stark contrast to those in mature markets
It is true, of course, that the demographics are admittedly more favourable in other parts of Asia than the China/Korea/Taiwan region. For instance, in Bangladesh, Indonesia and India – and even more so in Africa, where the working age population of Nigeria alone is forecast to increase in size by around two thirds between 2015 and 2050.
The emerging middle class
The rise of the middle class in emerging markets is well documented. Taking China – which inevitably dominates the global numbers – as an example, the number of affluent and upper middle-class households there is projected to increase to 63% of the total by 2022, from 17% in 2012, a meteoric rise.
By 2022, more than 80% of private consumption expenditure in China is forecast to come from these two economic groups.
Young Chinese a ‘force to be reckoned with’
That China’s millennials are clearly a force to be reckoned with is evident in the fact that millennial wealth is projected to more than double between 2015 and 2020, to somewhere between US$19trn and US$24trn. To put this into perspective, US GDP is projected to be only US$22trn at that date and the eurozone economy, just US$13trn.
So while ageing and fabulously wealthy Asian tycoons may still feature largely in the popular imagination, the real economic influence in Asia is middle class and, crucially, young.
The same phenomenon is evident in India. Recent survey data show that millennials’ gross income is significantly higher on average than that of the older generation (a trend also evident in China and all the Emerging ASEAN (Association of South East Asian Nations) markets), while 57% of all working millennials in India are the chief wage earners in their families.
This is a generation which is ready to embrace technology. The level of engagement is staggering – 963 million monthly active users (MAU) on the WeChat/Weixin social media service operated by Tencent and 340 million on the Sina Weibo microblogging service.
Unsurprisingly, the penetration by online retailing is surging and, again, it is the age of the customer base which is immediately striking.
In the past, China has been the determining factor in the spread of technology. However, nowadays, where the basic conditions of average wealth, youthful open-minded populations and weak incumbency co-exist, the speed of adoption may surprise people.
This is clear in Asia’s speedy take-up of the internet, which suggests the many infrastructure challenges faced there they will be overcome. Indeed, in Indonesia, a classic “difficult” market, it is already happening. The country boasts the third-largest Facebook user base in the world, with 40m transactions a month going through the GO-JEK app, a transport service akin to Uber, while Alibaba and Tencent are pouring money into the country.
Massive shift under way
So investors shouldn’t write off Asia simply by extrapolating demographic trends. There is a massive shift of wealth going on and the beneficiaries are young, middle class, technologically savvy and open to change. There will be many losers as well as winners from these rapid changes. Unsophisticated investment strategies are unlikely to be able to differentiate between the two.
However, for investors able to pick and choose Asia should continue to provide rewards as it becomes increasingly a leader rather than a follower in the application of genuine innovation.