A coming transformation in Asian consumer market

BigC supermarket in Vietnam

These changes result in significant shifts in spending patterns across Asia. But for equity investors, it is important to understand how this impacts companies. For that, we need to ask ourselves what Asians will purchase. Where are the new consumers? Will Indonesians spend more on, say, furniture than Indians, or is it the other way around? And, as China ages, what will these consumers shop for?

Mr. James Pomeroy, HSBC’s economist, constructed a proprietary demographic database. Using this, we can now answer these questions in considerable detail. It allows us to link demographic shifts, such as aging, for example, to spending.

In India’s case, for example, the number of people that spend USD2–20/day is falling sharply (that is the group in black) and the number of people in the grey basket—spending USD21–50/day—is rising rapidly.

In China, more people are moving into the upper income bracket, which includes people spending over USD111/day. That is the brownish bracket at the top right of Chart 4. By 2050, these high-end spenders will account for more than 35% of the total population.

In short, it's not the "rising middle class" but Asia’s "upper-middle class" that will be transforming consumer markets.

What’s driving consumer markets?

In Asia, the middle-class population is expected to grow at a CAGR of 2.1% until 2040, and what is defined as the "upper middle class" – that is, spending 51–110 USD per person per day – is set to grow at nearly triple that rate, at a CAGR of 5.9%.

The number of people in the highest bracket, who spend over USD110 every day, is expected to rise from 27m in 2021 to 50m by 2030e and balloon to 164m in 2040. By then, Asia will have more people in this high-income bracket than either Europe or the US.

Looking for growth

But as for countries across the region, Bangladesh is expected to see the fastest growth in its consumer markets – that is, the population earning more than USD20 per day in constant PPP terms – in the current decade. It is followed by India, the Philippines, Vietnam, and Indonesia. Korea and Japan will see a drop in the overall market by 2030.

But, in terms of size, mainland China is expected to retain its dominant position as being the biggest consumer market in the world with more than 800 million consumers by 2030 and 820 million by 2040.

And the number of consumers in mainland China making more than USD50 per day is expected to reach c420m by 2030, growing at a CAGR of 8.4% compared to a CAGR of just 0.5% in the US (over the same period).

In India, the upper-middle class (individuals earning between USD50-USD110 per day) is expected to grow by an average of 24% p.a. until 2030; in Indonesia it is expected to grow by an average of 13% p.a., and in Vietnam it is expected to grow by an average of 17% p.a. over the same period.

What will these people buy?

As incomes rise, people shop for different items. Typically, spending on necessities such as food and clothing (being necessities) falls while spending on health, leisure, and recreation rises. The question is, by how much?

Again, HSBC’s proprietary database can add some numbers to this.

For example, spending on recreation and transport is expected to rise the fastest, at more than 7% p.a. over the current decade. Conversely, food expenditure is expected to see its lowest growth at just 5% p.a. over the same period.

But to look at equity implications, we need to slice this further across sub categories. Doing so, we find that:

First, categories such as financial products, recreation, automobiles, computer equipment, and household services will grow fastest across Asia.

Second, financial services is a category that will grow fast across most countries in ASEAN, India as well as China.

Third, conversely, growth in spending on postal services, food items, and energy needs might lag.