How the “Four M’s” Support a Bright Asian Future
For a glimpse into the future of the global economy and the evolution of power, take a look at technological developments in China and India.,
In just a decade, the Chinese e-commerce market has grown from less than 1% of global sales to the world’s largest market in 2016, accounting for over 40% of transactions by value. Platforms like Alibaba and JD.com reach nearly a billion eager shoppers, in a market three times the size of the United States.
Meanwhile, India’s mobile tech adoption is growing at an astonishing rate as Reliance Jio – which has become India’s dominant tech company virtually overnight – brings fast connections to the 1.3 billion. inhabitants of India. Even as Covid-19 spread, Google and Facebook separately invested billions in this telecommunications company (a highly unusual step for rival tech giants) as projections reach 500 million subscribers by now 2023.
Events in the world’s two most populous countries illustrate the dynamics of why we believe Asia will shape the 21st century, and hold the attention of the long-term global investor. Unprecedented energies are being unleashed through an alignment of digital innovation – and the four ‘M’s that characterize Asian consumers: millennial, middle class, metropolitan and mobile.
We live, of course, in a time of uncertainty, and there are a lot of things that could go wrong in the story of 21 Asia.st rise of the century. Trade frictions between China and the United States, a possible fragmentation of 5G practices, regional rivalries in Asia and uncertain coronavirus outcomes all pose threats to the future of the continent and to the global economy as a whole.
Despite this, one cannot deny the social and demographic trends that are giving impetus to Asia’s rise to global economic leadership. Today’s Asian consumer is driving a transformation in the continent’s economic growth model that will continue for decades. From the manufacturing workshop of the West, Asia has reinvented itself as a leader in innovation serving increasingly demanding and sophisticated domestic markets, now defined by the four Ms.
Global investors are paying attention, both through private equity and financial markets. According to CB Insights, China already has nearly half the number of “unicorns” in the United States (start-ups valued at over $ 1 billion), with 118 against 238. India is on the rise quickly in the global unicorn rankings, ranking third in the world with 24. Meanwhile, global demand for Chinese assets hit an all-time high during the pandemic, with foreign holdings of Chinese bonds and stocks exceeding 1 trillion rmb ( about $ 150 billion) until August.
The four Ms represent a convergence of positive factors that will shape the Asian century. First, let’s look at millennials. There are 800 million in Asia, compared to 66 million in the United States (and 60 million in the EU). They are quickly becoming the most avid consumers in the world, driven by optimism and ambition. 65% of millennials in emerging markets expect to be better off than their parents, compared to an equal percentage in developed countries who expect to be worse off.
Next, consider the burgeoning middle classes in Asia. Hundreds of millions of people across Asia have recently joined middle-income country status, representing a vast pool of purchasing power. From an investment perspective, one of the main trends of Chinese consumers has been the preference for local brands. A McKinsey survey found that the Chinese now prefer national brands for 15 of 17 selected categories, including electrical appliances and personal products.
According to the Brookings Institute, Asia will account for nearly nine out of ten consumers out of the next billion middle-class consumers. Most will live in China, India and Southeast Asia, and by 2025, middle-class consumer spending in the Asia-Pacific region is expected to exceed that of the rest of the world combined.
This means that industries and sectors oriented towards consumption have great potential for growth. Consumer trends combine with growing health awareness to make consumer technology and healthcare two of the most significant investment opportunities in Asia today.
Now let’s look at the metropolitan clusters. Asia’s growth is made possible by increasing urbanization, as workers pursue their dreams in cities. Today, Asia has more than 300 cities of more than one million inhabitants; the US has 10 and the EU has 18. Asia’s densely populated populations provide ideal conditions for business growth. It fosters a virtuous cycle of scale, leading to faster, cheaper and more innovative products and services. A striking example is the Chinese application Didi Chuxing, which has 30 million active drivers who are, today, 10 times more numerous than those of Uber.
Finally, consider the avid followers of mobile technology in Asia. Asia has over 4 billion mobile phone subscriptions and over 2 billion Internet users, more than any other region, providing massive scalability for consumer technology.
Alibaba and other tech groups like We Chat and Tencent are charting innovative ways to harness this consumer energy with super apps that combine services like e-commerce, ridesharing, social messaging, and even insurance.
In India, innovators such as Flipkart and Paytm are reaching the far reaches of the subcontinent – as Reliance Jio pursues its dream of providing affordable telecommunications services to every Indian.
Will there be an impact on growth and innovation in the post-Covid era?
The Covid-19 crisis does not dampen the good prospects for Asia. On the contrary, it reinforces the dominant tendencies. Asia has so far rebounded, both health and economically, faster and more vigorously than Western economies.
Asia has used the disruption caused by the pandemic to accelerate the development of digital innovations essential in the post-pandemic era. These include remote communications, digital healthcare, mobile payments, e-commerce and next-generation mobility.
China, in particular, has performed remarkably well. Its economy posted 4.9% GDP growth in the third quarter, and the International Monetary Fund predicts that China will be the only major economy to grow in 2020, with an estimated expansion of 1.9%.
China is also experiencing continued strength in its initial market for public offerings; the process by which private companies first offer shares on public markets. There were 118 new registrations in the fiscal year through July – even as registrations are dying elsewhere.
These trends can only be reinforced by the inclusion of the Chinese currency in global indices and by the growth of local currency financial markets in the years to come. Additionally, China’s focus on growing internal manufacturing – known as “Made in China 2025” – could help protect it from any escalation of trade wars.
Although India has suffered a much greater health and economic impact, we believe the overall outlook remains strong. India’s consumption narrative is the perfect complement to China’s industrial rise, both of which represent the two pillars of Asian advances in the 21st century. IMF predicts India will rebound from Covid with 8.8% economic expansion in 2021.
The pandemic has prompted India to embrace digital transformation even faster than before. According to the World Economic Forum (WEF), the crisis has inspired a “public-private surge [to make] India is a digitally driven country, resetting the basic life experience and aspirations of over a billion people. “
Immense challenges await us, including regional tensions still present as these increasingly assertive countries take center stage. However, with an increased presence comes an increased focus and recognition of the importance of diplomacy in forums such as the UN and WEF. And the dynamism, aspiration and innovative vigor of the four Ms promise to make the century of Asia one of almost limitless possibilities.