Asia's workforce, dominated by adults planning for retirement, has amassed a savings surplus of more than US$300 billion invested in the global financial markets, US investment bank Morgan Stanley said.
"Asia has a high savings rate as its population is dominated by working adults saving in anticipation of retirement," it said in a report released yesterday.
"Asia's excess savings have provided global capital markets with large amounts of funds, giving better-than-expected support to financial asset prices," the report stated.
Including Japan, the world's second-biggest economy which is struggling with a fast greying population and falling birth rates, Asia's savings surplus "exceeded US$300 billion" last year, said the report dated Oct. 28.
But as Asia's population grows older, people are taking less risks with their investments.
"Asia's surplus savings are parked in bank deposits or American and European income assets, while local equity markets become increasingly dependent on foreign funds," it said.
This aversion to risk in Asia "can be attributed to the immature market for institutionalized investment," it said.
"Institutionalization of savings, which helps enhance diversification, offers a way to overcome the further decline in risk appetite," Morgan Stanley said.
"Asian governments should respond with policies that encourage savings institutionalization which will be bullish for equity markets over the long term," it said.
Institutionalization allows for savings to be professionally managed by institutional investors such as insurance companies, investment firms and pension funds.
A projected fall in Japan's savings surplus as its population ages further should be compensated by bigger expected surpluses from Asia's tiger economies -- Hong Kong, South Korea, Singapore and Taiwan -- as well as China, Morgan Stanley said.
"This aggregate savings surplus is unlikely to decline in the next five years," it said.
Using demographic projections from the UN, the bank said that Hong Kong, South Korea, Singapore and Taiwan, which have the lowest birth rates, "will be the fastest aging economies in the world" over the next 25 years.
South Korea, whose largest age group currently is between 35 and 44, "is catching up with Japan to become the oldest country in the world measured by median age by 2045," it said.
Countries with younger populations like India, Indonesia, Malaysia, the Philippines and Thailand "are moving up the curve," it said.
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