1. Asian Economic Overview

2. Dave Perrett Regional Strategist PPM Asia 15th Nov, 2000

3. Asian Economic Overview Content  Regional overview  The Asian Crisis  Medium term growth outlook  Prospects for the regional savings market  Opportunities for foreign owned institutions  Summary 1

4. Regional Overview

5. A Diverse And Highly Populated Continent China 1,259 India 986 Indonesia 206 Japan 126 Vietnam80 Philippines 76 Thailand 62 S. Korea46 Malaysia22 Taiwan22 Hong Kong 7 Singapore 4 Population m 7x US UK + France + Germany 3 Source: World Bank and UBSW Asian Economic Overview

6. Large Differences In Relative Wealth Japan 23,248 Hong Kong 15,400 Singapore 14,373 Taiwan 8,841 S. Korea 5,877 Malaysia 2,354 Thailand 1,354 Philippines 693 China 532 Indonesia 419 India 305 Vietnam 253 GDP per head £ 4 Source: World Bank and UBSW Asian Economic Overview

7. Wealth Concentrated In Small Proportion Of Population Malaysia54 Singapore 49 Thailand 48 China47 India46 Indonesia 45 S. Korea 39 % share of consumption by top 20% of pop’n 5 Source: World Bank and UBSW Asian Economic Overview

8. Young Population In Less Developed Economies JapanUKUSThai India Phil China Indo Malay % of population under 24 years old 28 31 35 41 43 51 53 58 53 6 Source: US Census Bureau and International Data Base

9. Asian Economic Overview Sing USIndiaTaiwan HK Thai Japan Korea Malay 19 22 26 28 30 33 36 38 51 Savings as a % of GDP High Asian Propensity To Save 7 Source: Asia Development Bank and UBSW

10. The Asian Crisis

11. Asian Economic Overview The Boom  Early 90’s - Everybody wanted to join the Asian Tiger miracle –Capital inflows leading to rapid credit growth  Significant Capacity Investment –Predicated on rapid growth predictions 1992 100 80 60 40 20 0 (20) 1993199419951996199719981999 Equity flowsDebt funding £ bn 9

12. Asian Economic Overview  Demand for Asian goods slowed and pricing power ebbed –Growth forecasts over optimistic –Returns on capital fell  Thai baht devalues –Investors underestimated risk –Retreat became a rout  Asia stops importing –Domestic demand collapses The Crisis 10

13. Asian Economic Overview  Large trade surpluses and low asset prices lead to currency stability  V-shaped recovery in 1999 and 2000 The Recovery Real GDP growth 1997 - 2000 1997199819992000 11 Japan Singapore Thailand Indonesia Korea % 15 10 5 0 -5 -10 -15

14. Post Crisis - Medium Term Outlook

15. Asian Economic Overview Asian Growth Model Still Valid  Asian Crisis was inevitable conclusion of 1990’s prolonged cyclical excess  Key ingredients of Asian growth model remain –Young population in South East Asia and China –Entrepreneurial environment in many countries –High savings rate –Emphasis on education and openness to trade –Increasing urbanisation  Legacy will be more prudent, market driven capital allocation 13

16. Asian Economic Overview Asia: Strong 30 Yr Average Real GDP Growth Rates Asia has weathered many crises in past 30 years and still produced high average GDP growth rates JapanPhilIndiaIndo Thai HK Malay Korea SingTaiwanChina 3.3 3.5 4.9 5.9 6.5 6.6 6.9 7.6 8.0 8.1 8.6 % 1971-1999 14 Source: World Bank and UBSW

17. Asian Economic Overview Medium Term Growth Forecasts Impressive By Global Standards CountryGDP % China7.0 Hong Kong4.0 India6.0 Indonesia5.5 Japan2.0 Korea5.5 Malaysia5.5 Philippines5.0 Singapore5.0 Taiwan5.5 Thailand5.0 Vietnam 6.0 15 Source: PPM Asia

18. Prospects For Regional Savings Market

19. Asian Economic Overview  Cultural inclination to save reinforced by –Limited social security –“Scare” of the Asian Crisis  Rapid urbanisation –Shift away from poor rural farming economy –Breakdown of traditional family support groups  Increasingly educated population –Higher skilled –Growing middle class Overview Of Key Drivers For Savings 17

20. Asian Economic Overview Pre And Post Crisis Fiscal Deficits Japan Thai India Korea 19962000 Malay Post crisis governments cannot afford to improve social security networks Source: World Bank, Key Indicators of Developing Asian and Pacific Countries (1999) and Merrill Estimates 18 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 % of GDP

21. Asian Economic Overview Urban Population Increasing 60 50 40 30 20 10 0 Thai 19801998 PhilKoreaChinaMalay % of total population 19 Source: World Bank and UBSW

22. Asian Economic Overview Urban Workers’ Incomes Significantly Higher Than Rural Counterparts China Rural India 220 493 166 806 Urban £ per year 20 Source: World Bank and UBSW 1995-1999

23. Asian Economic Overview Population Becoming Better Educated Thai 19801997 % Attending secondary school Malay IndoIndiaChina 70 60 50 40 30 20 10 0 21 Source: World Bank and UBSW

24. Asian Economic Overview  Majority of personal savings in bank deposits –Asian equity “speculator” in a small minority  Increasing demand for wider choice –Improved information flows leads to greater transparency Increasing Consumer Sophistication In Savings Market 22  Widespread change in savings habits likely across region

25. Asian Economic Overview Asia: Preference For Low Risk 100 80 60 40 20 0 Asia United States 23 % Distribution of personal savings by asset class Source: McKinsey 1998 PensionMutual FundDepositsInsurance

26. Prospects For Foreign Owned Savings Institutions

27. Asian Economic Overview Low Current Foreign Providers Market Share Domestic Indo JapanKorea Thai 88 98 95 12 22 5 Foreign % 25 Source: Credit Suisse First Boston

28. Asian Economic Overview Good Prospects For Foreign Owned Savings Institutions  Increasing consumer acceptance of foreign brands  Asian financial sector increasingly open to foreign ownership  China’s WTO entry  Cost of entry, post currency devaluations, now significantly lower 26

29. Asian Economic Overview Restrictions Eased On Discretionary Basis Foreign Ownership Ceilings Raised Majority Foreign Ownership Allowed Markets Opening Up To Foreign Ownership Japan Korea Thailand India Malaysia Singapore Taiwan 27

30. Asian Economic Overview  Loss of confidence in local institutions  Local institutions have insufficient resources to upgrade products and services  Greater access to consumers via new technology  Increasing financial sophistication of consumers Opportunities For Foreign Owned Financial Institutions 28

31. Asian Economic Overview  Asia - populous and diverse  Solid growth drivers in place. Outlook for robust, but smarter, more sustainable growth  Growing middle class, rapid urbanisation and poor social security net mean strong demand for long term savings products  Increasing saver sophistication will prompt a trend away from bank deposits  Recent liberalisation has increased entry opportunities Summary Fundamentals for growth remain strong with excellent prospects for foreign owned RFS players 29