Asia is projected to become the oldest region in the world – by the 2030s, it will be home to around 60% of the world’s elderly. Jamie Grant, Head of Emerging Markets Debt and Asian Fixed Income at CFSGAM, explains why these demographic shifts are expected to have a significant impact on demand for Asia’s fixed income markets over the next decade.
Pension systems must evolve quickly
Many of Asia’s existing retirement systems appear ill-prepared for rapid population ageing. It’s worth remembering that comparable demographic changes evolved over a century in Europe and North America, but are occurring within a single generation in Asia.
In fact, the Asian Development Bank has suggested that by 2030, 500 million savers in Asia will begin a pension plan for the first time. This rapid development of pension systems across the region is expected to significantly increase demand for various investment types in Asia, including fixed income.
Compared to OECD averages, the percentage of Asian people that contribute to pensions is currently low. Hong Kong and Singapore’s pension systems are the most developed in Asia, but other major economies in the region are coming off a lower base in terms of pension system development. We anticipate the pace of growth and development will be greater for these economies, potentially presenting interesting opportunities for investors.
Asia is becoming wealthier as well as older. Along with solid economic growth rates, GDP per capita is projected to rise significantly in Asia. This is supporting growth in the middle class across the region, which is significant in terms of population. Over the long term, this is expected to support demand for Asian fixed income, as well as other investment types.
Projected GDP (US$) per capita
Source: PWC, CFSGAM, 2017
The appeal of Asian credit
Pension growth appears likely to underpin support for Asian investment grade corporate bonds in the coming years. When we meet investors yet to allocate to Asian credit, we often suggest they should consider it as a core holding within a diversified investment portfolio going forward. The market is maturing and has historically produced risk adjusted returns that compare favourably to other asset classes.
Managing portfolios since 1999, our Emerging Markets Debt and Asia Fixed Income team is one of the longest established in its asset class. While emerging markets can be more volatile and illiquid than their developed counterparts, our active investment approach and focus on liquidity aims to preserve capital. For over 10 years, ESG considerations have been integrated into our credit research process, helping us to identify and manage risks in Asian fixed income portfolios.
This material has been prepared and issued by First Sentier Investors (Australia) IM Ltd (ABN 89 114 194 311, AFSL 289017) (Author). The Author forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group. A copy of the Financial Services Guide for the Author is available from First Sentier Investors on its website.
This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider, with a financial advisor, whether this information is appropriate in light of your investment needs, objectives and financial situation. Any opinions expressed in this material are the opinions of the Author only and are subject to change without notice. Such opinions are not a recommendation to hold, purchase or sell a particular financial product and may not include all of the information needed to make an investment decision in relation to such a financial product.
To the extent permitted by law, no liability is accepted by MUFG, the Author nor their affiliates for any loss or damage as a result of any reliance on this material. This material contains, or is based upon, information that the Author believes to be accurate and reliable, however neither the Author, MUFG, nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of the Author.