Asia has risen to global economic prominence over the last thirty years on the back of its manufacturing prowess, producing competitively-priced products for Western consumers. Its skills are now comparable with any region in the world in goods ranging from basic textiles and toys to highly engineered consumer electronics products including notebook personal computers, flat screen televisions, games consoles and smart phone handsets. In heavy engineering also Asia has acknowledged expertise. Of the new ships built in the world in 2009, 91% came from Asia (25% from Japan and 66% from China and South Korea) ranging from basic dry bulk to liquid natural gas carriers.
The process of mass industrialisation has improved the standard of living and household income for many in Asia. In countries such as Korea and Taiwan and in city states like Hong Kong and Singapore national income per head has reached developed world standards of between $27,000 per head and $50,000 per head. The result is the formation of a vibrant Asian middle-class, reaping the rewards of the region's economic development.
Asia's scale alone implies this middle class has formidable purchasing power. Bring together China's population of 1.3 billion, add India's 1.1 billion people and the 237 million in Indonesia and this amounts to 38% of world population. China's national income per head is an estimated US$6,828 on an equivalent buying power basis, near the tipping point where history suggests that private spending accelerates.
Asian consumers in truth are similar to western ones. They have the same basic desires: Food, shelter and provision for children and old age. When incomes rise then there is an aspiration to improve on these basics. The goods consumers in Asia are beginning to buy are the same as in the West: Houses, cars, white goods, electronics, clothes and luxury goods. The services consumed are also the same: Education, healthcare, investments, insurance and savings. Thus consumption in itself becomes the next engine of economic growth.
From an investment point of view, the pattern in Asia is similar to changes in economic life in North America and Europe in recent decades. Although history never repeats itself, the human aspiration for self-improvement is a powerful motive, and in this Asia is no different from anywhere else. However, the population size of Asia implies this process has global impact. This offers investment opportunities, for example, in raw materials for home construction, in power for manufacturing, in cars for private consumption, on roads to drive them on and in services as incomes rise further. We believe the rise of the Asian middle-class is a long-term transformational theme that investors cannot ignore.