The Asian consumer sector has always been widely talked about in Asia but has generally disappointed investors. However, some catalysts are emerging that could change this. With savings rates as high as 40 per cent of income, a depressed loan-to-deposit ratio in financial institutions and positive demographics, Asian consumers are set to be more dominant in driving their economies in coming years.
The depressed loan-to-deposit ratio, currently at 76 per cent compared with 106 per during its peak in January 1998, is set to be a strong catalyst for consumption in the years to come. After having severely de-leveraged since the Asian financial crisis, Asian consumers are ready to spend again, enjoying job security and income growth for the first time in eight years.
At the same time, the excess liquidity in the system and the return of inflation is likely to lead to asset reflation creating wealth effect and lesser need for higher savings rates.
This is similar to Australian and US consumers in recent years with their wealth enhanced by higher asset prices especially in housing.
Although asset prices in Asia have risen 30 per cent since the Sars epidemic, they are still about 50 per cent below their pre-Asian crisis level. This wealth effect is going to have a multiplier effect across the region in terms of broad based consumption ranging
from housing, automotives, travel to basic staples such as food and beverages.
With the dollar on a weakening trend (and therefore Asian currencies appreciating) on top of an expected slowdown of growth in OECD countries, a slowdown in Asian exports should be expected. The consumer sector, together with the migration to more service-oriented economy, will need to play a more dominant role in driving economic growth in Asia.
Peter Sartori, head of Asia ex Japan,
Credit Suisse Asset Management
