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Trend 4: The Rise of Asia & India’s Millennials

Investment Outlook 2016 – Trend 4 , Published Sep 16, 2016

This blog is part of Sanctum Wealth Management’s Mid-year Investment Outlook 2016. The Outlook gives us an opportunity to step back and look at the big picture to identify trends that have the potential to affect investment portfolios, both domestically and globally. We’re focused on six key trends and this week’s blog emphasises how the increased purchasing power of India’s ever-growing millennial segment will make our consumer story one of the most compelling over the next two decades. This is probably the most bankable and investable trend in our list. The start of the new millennium saw Asian economies growing at higher rates that lifted the continent’s share of global GDP from 26% to 32% (between 2000 to 2014). The Economist predicts that Asia’s steady and dramatic rise will persist up to 2050, accounting for 53% of global GDP. This is not a new phenomenon; Japan rose in the 1980s, driven by Deming’s operational genius. South Korea and Taiwan were part of the electronics boom, followed by the low-cost manufacturing miracle out of China. Urban Infrastructure & Productivity - Investment Outlook 2016 Growth in China and India is forecast to be so spectacular that by 2050, each of these nations will be larger than the next five – a list that includes Germany, Japan, Brazil, the United Kingdom and Indonesia. The scale of wealth creation in China and India will be at a rate unrecorded in modern history.

“The scale of wealth creation in China and India will be at a rate unrecorded in modern history.”

Urban Infrastructure & Productivity - Investment Outlook 2016 The U.S. experienced a massive wealth creation between 1980 and 2000. The oldest Boomers were 35 years old and the youngest were 16 in 1981. By 2007, the oldest was 61 and the youngest 41. Today, the youngest Boomer is 51 years old and the oldest 71 years old. The median Boomer is already retired. Demographics has always had a strong hand in the wealth and consumerism of the West. If demographics drive destiny, then we could see a repeat of this consumer trend in India.

“A new era of demographic decline in the West gives huge scope for India to catch up with developed economies.”

Urban Infrastructure & Productivity - Investment Outlook 2016

Emerging Asia Consumer Dynamics

China, followed by India and other emerging Asian economies, is creating a vast new base of consumers with an annual household income of over USD 5,000. Many of these new entrants will push deeper into the ‘global middle class’ and consume much more. Comparably, however, this middle class will be considerably poorer than today’s middle class in advanced economies. In China, for example, the peak income will average about USD 18,000 per year in current dollars — more like a giant Poland than another U.S. As a result, the advanced economies will still account for 40 percent of the growth in consumer spending power. This is a large market but most consumers will purchase many things at much lower price points. Due to lower incomes of consumers, the overall basket of goods and services will also differ from what consumers pick up in advanced economies. Thus, companies will have to target the emerging markets with a different cost structure and product mix. Urban Infrastructure & Productivity - Investment Outlook 2016

The Rise of the Indian Millennial

Wages of India’s urban middle class have grown over the past few years, but not as fast as the salaries of lower middle class and blue collar workers in urban areas, on a percentage basis. This trend is particularly true in urban metros. Such a huge base of urban blue and white collar workers in basic corporate jobs as well as migrant workers – roughly 130 mn and earning an average USD 3,100 p.a. – will push up consumption levels in the next 5-10 years in India. Within the youth segment, analysts forecast that it will be the 440 mn millennials and 390 mn Gen-Z (born after 2000) who will shape this consumer story. The sheer size of the youth segment paves the way for sustained growth in purchasing power, making India’s consumer story one of the world’s most compelling for the next 20 years. The nation’s challenge is to create enough jobs to unleash their productivity. Finally, online sales in Asia are set to grow far in excess of the global average, predicted to reach USD 1.3 tn by 2019 at a CAGR of 18.5%. Ironically, the best way to play the India online consumption theme may be through a foreign company: Amazon.

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Mid-Year Investment Outlook 2016