As eye-catching as growth projections are for retirement assets in emerging Asia, the majority of fund managers will continue to focus on the vast US market over the next decade, says Allianz Group.
The United States makes up more than half of the €22 trillion ($28.8 trillion) in pension assets globally, while the market in emerging Asia amounted to €1.85 trillion at the end of 2009.
Allianz is forecasting that the figure for emerging Asia will grow by an average of 16.8% a year through to 2020 to amass €2.16 trillion.
Yet this pales in comparison with the US and Europe. Allianz predicts that US assets will rise by a further $5.2 trillion over the same period – more than double the entire assets in emerging Asia – to €16.3 trillion.
That’s a compound annual growth rate of just 3.6%, and it will likely take until 2013 for the US to pass its high-water mark in assets, set pre-crisis in 2007.
But the vast dollar figures mean that many asset managers will concentrate on the US rather than attempt to navigate tricky, smaller Asian markets.
“When you look at China and India relative to the developed markets, whether the US or Europe, these markets are still very small,” says Douglas Eu, CEO of Allianz Global Investors Asia-Pacific.
“China is basically a closed market to most of us. We all see China as a very, very big long-term opportunity. It could and should be one of the largest pension markets in the world. But it won’t happen in the next 10 years.”
Australia is the most mature market in the Asia-Pacific region in terms of retirement assets, by some degree, with Japan and Singapore the only other two countries that fall into the developed camp, notes Allianz’s Demographic Pulse report for September.
Australian assets make up 3.5% of the €22 trillion global total, ahead of Japan’s 3.2% and behind only the US at 50.5%, a combined Western Europe at 20.1%, and the UK at 11.5%.
Whereas Australia introduced mandatory defined-contribution plans for retirement in 1992, such schemes have only been introduced around the turn of the century in China, Hong Kong, India and Taiwan. Thailand is only now considering doing the same.
“Australia started before everybody else,” says Eu. “They started gathering assets 20 years ago and have been very aggressive.
“On this planet Australians are probably the most prepared people for retirement. They have a healthy level of paranoia about how much money they will need.”