COVID-19 accelerates change for Asian consumers

9 June 2020

Herald van der Linde, Head of Equity Strategy, Asia Pacific, HSBC

Alongside the immediate and obvious changes in Asian consumer behaviour caused by COVID-19 – the shift away from cash, the further growth of online interactions – other, deeper trends are being accelerated by the crisis.

A chief area of disruption is in digital services. Pre-pandemic, working from home was viewed as unacceptable in many countries. Now, it is part of the new normal , with greater demand for better home WiFi and IT equipment.

The level of internet penetration in Asia is extremely uneven, and is still low even in key economies such as India and Indonesia. The COVID-19 crisis could be a catalyst for higher rates of home broadband penetration in such markets, with large telecoms companies set to benefit from faster 5G roll-out. This should also increase demand for ancillary IT services, such as videoconferencing, e-commerce, home education tools and online gaming. Online medical services, principally delivered through apps, have also seen a surge in activity in Asia since the onset of the virus. For some providers, traffic has increased tenfold.

Away from the virtual world, increased acceptance of working from home may encourage firms to downsize on office space and other commercial real estate. In places like Singapore, where occupancy costs are relatively high, however, there has been a fundamental shift during the lockdown in the way retailers do business as safe distancing guidelines have encouraged the use of self-checkouts, cashless and contactless payments. In the long term, we might see retailers moving from occupying physical space to just a purely online strategy. Food outlets might shift their focus from physical space to cloud kitchens and food delivery apps.

Meanwhile, people wary of contagion on public transport could turn more to bikes as a way to commute. In fact, many countries have already reported a noticeable uptick in bike sales.

Much has been written about a surge in household debt in many Asian economies in recent years. This trend has supported consumer spending and allowed for a ‘rebalancing’ of the economy away from investment and external demand towards household expenditure across Asia. This has been a welcome trend as it creates an economy less dependent on just exports. This is above all the case in China, but also elsewhere.

“Online medical services have seen a surge in activity”

But the result is a considerable build-up in debt, especially because of the high cost of housing. Outstanding mortgages in China were equivalent to 84 per cent of urban disposable income in 2019, up from less than 50 per cent in 2014, with the rise mainly due to more relaxed regulations for home purchases, and lower down-payments, making more people able to take on leverage when purchasing homes in urban China.

The question is how households will adjust. Which types of spending will shrink the most given tightened budgets from lower incomes and higher debt repayments? In terms of income elasticity, we find that travel, durable goods and telecoms would be affected more compared with necessities like food and clothing. But one exception is the luxury sector that has been more recession-proof than most other sectors and recovered faster than other industries during other crises in the past.

Disclosure and disclaimer

Disclosure appendix

Analyst Certification

The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Herald van der Linde, CFA,

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