Southeast Asia Poised to Maintain Double-Digit Growth


Southeast Asia Poised to Maintain Double-Digit Growth

Evolving investment needs will raise foreign exposure in both retail and institutional segments

July 2019, Singapore—Despite heightened volatility in global financial markets and slowdown across major economies in Asia, asset managers in Southeast Asia interviewed by Cerulli Associates are largely optimistic about growth prospects. Regional assets under management (AUM) are projected to hit a compound annual growth rate of 10.9% between 2018 and 2023, supported by a rising middle class, improving financial literacy, expansion of online distribution channels, and regulatory support. These are some of the key findings from Cerulli Associates’ newly released report, Asset Management in Southeast Asia 2019: The Welcome Mat Unfurls Further.

Currently largely underpenetrated, Indonesia is poised to lead regional growth, backed by its rapidly expanding middle-class population. Assuming just 20% of its current labor force of 125 million people invest US$300 annually in mutual funds, this could translate to fresh yearly inflows of US$7.5 billion, or more than 20% of the current Indonesian mutual fund AUM. Moreover, technological advancements have facilitated fund houses’ efforts to reach out to and
service the underbanked and rural populations in the country via mobile applications, social media campaigns,
e-wallets, and others.

Mutual fund AUM in the region contracted by 4.0% to US$369.6 billion in 2018, following stellar growth in 2017, as a
result of sluggish investment sentiments. Managers in Malaysia and Thailand expect 2019 to be a challenging year
for new fundraising as well, due to the prevailing market sentiments as well as strong competition from deposits and structured products. Managers in Indonesia and the Philippines are hopeful that new distribution channels and favorable regulatory developments will help expand the investor base to more middle-class investors and build a solid foundation for long-term asset growth.

While the developing Southeast Asian nations’ assets and investor base are dwarfed by North Asia’s, the region’s prospects are fuelled by its rising middle class and emerging affluent populations. Their investment needs are also
evolving and becoming more diversified as regulators gradually open their markets. Seeing fintech as a strong enabler to boost financial inclusivity, regulators are generally supportive of new developments in this area; such alternative
modes of distribution are welcome in breaking the dominance of banks in the longer term.

Evolving investment needs will also raise foreign exposure in the region’s retail and institutional segments. Foreign
banks are increasing their wealth management footprints, and global asset managers are increasingly engaging in product and distribution partnerships with local players. Over the years, feeder funds have seen steady inflows in markets such as Malaysia and Thailand, while the Philippines and Indonesia are gradually opening up to foreign investments. In addition, a handful of regional managers have recently established onshore presence, organically or by acquiring existing players in the market. There are also increasing opportunities in the alternative segments, such as private equity and real estate, where institutional investors are seeking additional exposure and fee competition is less intense. Fund managers that wish to tap this pool of assets will need to demonstrate unique propositions or capabilities to diversify portfolios at an acceptable level of risk.


“Reaping profits from Southeast Asia is a long-term game: the region is highly fragmented, and each market is unique. There is no one-size-fits-all solution,” says Evonne Gan, an associate director at Cerulli. “Nevertheless, staying committed to the local market can help boost a firm’s relationship with regulators, distributors, and end investors. Fund houses need to demonstrate to regulators that they are in the market for the long haul, and not out just to make a quick buck.”

These findings and more are from The Cerulli Report—Asset Management in Southeast Asia 2019: The Welcome Mat Unfurls Further. In its 13th iteration, this annual report sizes and identifies opportunities and challenges in Southeast Asia ex Singapore five key markets—Thailand, Malaysia, Indonesia, the Philippines and Vietnam. It provides insights into distribution and product trends, regulatory developments, profitability for selected markets, and operational strategies for asset managers in the region.

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