From our perspective in New York City, it’s clear that the world’s economic centre of gravity is steadily shifting south and east.
Asian wealth is growing because of a rising and increasingly prosperous middle class. This is in contrast to the US where the middle class population is stable and there has been little change in inflation-adjusted incomes for at least a generation.
So what is the middle class? The Organization for Economic Cooperation and Development defines the global middle class as those households with daily expenditures of between $10 and $100 per person in purchasing parity terms.
The middle class is growing most rapidly in Asia. In fact, according to the OECD, the population of Asia’s middle class is expected to increase from 525 million in 2009 to 3.3 billion in 2030.
Equally astonishing is that by 2030, the OECD forecasts that Asian middle class spending will increase more than six times, from about $5trn in 2009 to $33trn. That’s a lot of wallet power. While China will be at the centre of this change, India, Indonesia, Malaysia, Thailand and Vietnam will also play a significant role.
This is in sharp contrast to what’s occurring in the US. We are by no means down on the US economy, but the increasing population and purchasing power of the Asian middle class provide the region with a powerful tailwind that will make it difficult for America to match its pace of economic advancement.
Investors and businesses should take note.
There are many types of businesses that can potentially benefit from the anticipated increase in consumption. Sure, not everyone will be able to afford a new car. But many will be able to add more protein to their diet, use washing detergent more frequently and dine out more regularly.
Jardine Matheson, which is held by clients of Tsai Capital Corporation, is a Hong Kong-based conglomerate that is in an ideal position to capture some of this spending.
The company was founded in 1832 and is today a diversified conglomerate that operates almost entirely in Asia. Its primary asset is a company called Dairy Farm, which is a leading pan-Asian retailer with more than 5,700 supermarkets and other types of stores. Additionally, it owns a 50 percent interest in Maxim’s, a leading restaurant business in Hong Kong and China with more than 810 outlets.
Jardine will be one of many businesses to benefit from the increasingly populous and affluent Asian middle class. Western-based multinationals that have strong distribution, brand recognition and operating expertise in the region should also thrive.
Companies that ignore the soaring economic firepower of Asia’s middle class will soon miss out on $33trn in consumer spending. That would be a costly mistake, to say the least.
Christopher Tsai is president and chief investment officer at Tsai Capital Corporation