Asian Consumers Will Redefine the World


Power of Ideas

Asian Consumers Will Redefine the World

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Kirk West - Asia Summit 2019
Kirk West
(Executive Director, International Business and Clients, Principal Global Investors )
Bob Baur
Bob Baur
(Chief Global Economist, Principal Global Investors)

Pocketbooks, not politics, will help Asia influence economies around the world. The region’s sway will come from the oncoming wave of consumers it’s unleashing upon global markets. But increased consumption is only the initial impact.

Factors Propelling Asian Consumers

Two factors have driven the rise of the Asian consumer. The first is an increasing standard of living across the region. According to the World Bank, over the past three decades, nearly 1.1 billion people on Earth have moved out of poverty—mostly in Asia. As incomes increase, rising standards of living eventually give way to higher levels of consumption.

Now, layer in the fact that China reports 1.2 billion of its citizens using 4G mobile phones. India crossed the billion-user threshold back in 2015. And 95 percent of South Korean adults have smartphones, according to Pew Research.

Consumer behavior is mostly learned behavior, and mobile technology has been a prolific teacher. Mobile phones give consumers the chance for global cultural awareness. Through her phone, a Thai shopworker can easily listen to music from Berlin, buy the latest fashions from Paris, and watch movies from Hollywood. In fact, back in 2016, PwC found that 93 percent of all consumers in Southeast Asia had made online purchases.

Mobile phones have also revolutionized how people interact with money. You no longer need a bank branch to transfer, save, or spend money. A phone is like a bank in the palm of your hand.

With a rising middle class armed with technology, Asian consumers are turning into a driving force in the global economy.


From Manufacturer to Market of Choice

Asian consumers are becoming more sophisticated and globally savvy. Bain & Company, a management consultancy, expects Chinese consumers’ recent dominance of the global luxury industry to grow by up to 20 percent a year.

And Asia is no long just a low-cost manufacturer, but a market of choice. In a 2017 report, Brookings found that Asian middle-class consumers had outspent their North American counterparts. And it shows in company results. LVMH, one of the world’s most prestigious luxury brands, drew 36 percent of its global revenues from Asia in 2018—more than any other region.


Broader Economic Effects

Consumer behavior is a journey of continual progression. Tastes change. Technology advances. Household budgets increase. And as Asia’s consumer boom blossoms, that progression will have broader global impacts.

As consumer incomes rise, the Asian middle class will foster its own tastes and fashions, likely with a local flavor. Western fashions, brands, and entertainment may not stay the be-all and end-all that they were early in Asia’s development. India already has its own successful movie industry. And Western entertainment is adjusting content and tactics to attract Asian audiences. In Captain America: Civil War, several of the superheroes sported Vivo phones, a Chinese brand not even available in the US. And it’s now common for global football brands like FC Barcelona and Manchester United to tour Asia during their offseason.

That said, renowned global brands could suffer as competition flourishes from local designers and entertainers.

Global commodity prices could increase as Asian consumers come onto the global scene. Stronger demand for manufactured goods would push up input prices. But also, as the World Health Organization points out, as people make more money, one of the first things they want is more animal protein. That gives global livestock producers new markets in developing Asia but could divert needed cereal grain harvests toward livestock production and away from human consumption. All that could stoke a bit more inflation around the globe.

But consumption is only part of the economic equation. As incomes rise across Asia, billions of earners will become billions of savers, and—eventually—billions of investors. They’ll need investment advice to expand their savings and suggestions to help plan for a long retirement. Just like the consumer brands before them, the change will spur investment managers to find products and strategies tailored to their Asian clients as they move from saving to investing.

Lastly, as Asia’s households redefine consumption, they will push Asian businesses to redefine investment markets. Market indices will broaden to include Asian companies that fulfill consumer needs, rather than just manufacturers and commodity producers. And as those indices encompass a wider array of businesses, investors around the world will benefit from more opportunities.

Disclosure: The information in this document contains general information only on investment matters and should not be considered as a comprehensive statement on any matter and should not be relied upon as such nor should it be construed as specific investment advice, an opinion or recommendation.

Published September 11, 2019