By Adrian Lim, Investment Director, Edinburgh Dragon Trust plc

• Asia has a young, entrepreneurial and increasingly wealthy population
• This brings investment opportunities in areas such as healthcare and financial services
• As entrepreneurship declines in the West, it is blossoming in Asia

For the developed world, the strain of coping with an ageing population is becoming all-too clear. There are too few people working and paying taxes to support generations that have gone before them. This creates a higher debt burden, which in turn, stalls growth.

This is in stark contrast to many Asian countries. India, China and Indonesia house around 3bn people, just under half the population of the world. More importantly, these populations are young, entrepreneurial and becoming wealthier. More than 50% of India’s population is below 25. In Indonesia, just 15% of the population is over 55. (1.), less than half that of the UK. In Japan, the same figure is 40%.

These Asian economies benefit not just from growth in the working-age population, but also from rising labour force participation as, among others, women increasingly join the work force. This means more people working, paying taxes, contributed to government revenues and, more importantly, fewer old-age care and pensions costs.

Debt and demographics are also inextricably linked. Developed market governments are often unwilling to take the risk of raising taxes and therefore the debt burden increases to absorb the additional costs associated with old age care. Those governments, such as India, who do not have this burden can direct money to social programmes, infrastructure spending, to technology development and other productivity-enhancing initiatives.

At the same time, over the next few years, net wealth and net capacity to spend within these Asian markets should steadily increase. This emerging generation will buy their own homes, cars, white goods and holidays, while also increasing their consumption of sophisticated financial services such as insurance products and investments.

These improving demographics give these economies an important long-term buffer against shifts in the economic cycle in the short-term. They also give these economies a significant structural advantage against their Western peers.

Importantly for us as investment managers, it also brings opportunities to invest in companies that are benefiting from this theme. These are often distinctly different from those in developed markets. For example, when investing in financials in developed markets investors have to unpick a complex web of derivatives transactions, counterparty risks and capital adequacy. In Asia, financials are at an earlier point in their development, with far greater opportunities ahead.

Asian financials are the key beneficiaries of greater financial inclusion. According to the World Bank, more than 1 billion people within the region still have no access to formal financial services. Only around a third have a bank account (2.). It is a similar picture for the small business sector, where only around a third have access to a loan or line of credit.

To our mind, this creates a huge opportunity for the financial sector in Asia. As their young populations gather wealth and seek to create financial security, we believe they will seek out financial products in ever-greater numbers.

There are other sectors likely to benefit from the increasing spending power of a young and wealthier workforce. For example, the next generation is far more inclined to spend money on healthcare. While healthcare spending globally is growing at a little under 5%, across Asia it is growing at 8% (3.)

This puts a strain on state-run healthcare systems, which has seen new private-public partnerships or use of public health insurance in private hospitals increase, maximizing the use of available resources. With this in mind, we hold Raffles Medical Group and Bangkok Dusit Medical Services. The latter is the largest private hospital group in Thailand. Its brand reputation means it benefits both from rising domestic demand for healthcare and medical tourism across the region.

The demographic profile also drives consumer choices. Domestic consumption is growing and companies such as Hindustan Unilever, the Indian branch of the global consumer goods company, are geared into this growth.

There is also an important signal for the future. Not only does Asia have a far greater share of young people, those young people are more entrepreneurial. Despite their reputation, millennials in the US are showing less inclination to start businesses. Entrepreneurship rates for people under 30 have fallen by 65% since the 1980s.

It is a completely different picture across emerging markets, and particularly in Asia. Partly, this is optimism. Asian millennials are in exciting, growing economies. A recent survey found that 71% of emerging-market millennials expected to be better off financially than their parents. Western millennials feel the exact opposite about their baby boomer parents.

In our view, this is likely to contribute to the dynamism and strength of Asian economies over the next decade and beyond. There should be a rich pipeline of new ideas and opportunities, of which investors can take advantage. In this way, the demographic dividend of Asian economies will persist for the long term.

1. https://www.indexmundi.com/indonesia/demographics_profile.html
2. http://blogs.worldbank.org/allaboutfinance/financial-inclusion-asias-unbanked
3. https://www.enterpriseinnovation.net/article/frost-sullivan-sees-increased-healthcare-spending-across-apac-1530917047
4. https://www.entrepreneur.com/article/298091

 

Important information

Aberdeen Standard Investments is a brand of the investment businesses of Aberdeen Asset Management and Standard Life Investments.

Risk factors you should consider prior to investing:

• The value of investments and the income from them can fall and investors may get back less than the amount invested.
• Past performance is not a guide to future results.
• Investment in the Company may not be appropriate for investors who plan to withdraw their money within 5 years.
• The Company may borrow to finance further investment (gearing). The use of gearing is likely to lead to volatility in the Net Asset Value (NAV) meaning that any movement in the value of the company’s assets will result in a magnified movement in the NAV.
• The Company may accumulate investment positions which represent more than normal trading volumes which may make it difficult to realise investments and may lead to volatility in the market price of the Company’s shares.
• Movements in exchange rates will impact on both the level of income received and the capital value of your investment.
• There is no guarantee that the market price of the Company’s shares will fully reflect their underlying Net Asset Value.
• As with all stock exchange investments the value of the Company’s shares purchased will immediately fall by the difference between the buying and selling prices, the bid-offer spread. If trading volumes fall, the bid-offer spread can widen.
• The Company invests in emerging markets which tend to be more volatile than mature markets and the value of your investment could move sharply up or down.
• Yields are estimated figures and may fluctuate, there are no guarantees that future dividends will match or exceed historic dividends and certain investors may be subject to further tax on dividends.

Other important information:

Issued by Aberdeen Asset Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Registered Office: 10 Queen’s Terrace, Aberdeen AB10 1XL. Registered in Scotland No. 108419. An investment trust should be considered only as part of a balanced portfolio. Under no circumstances should this information be considered as an offer or solicitation to deal in investments.

Find out more at: www.edinburghdragon.co.uk