Emerging Asia may be enjoying a bull run in stocks, but the region may miss out on the "wealth effect" that would spur consumers to increase their spending, analysts said.
A rise in stock prices usually boosts the wealth of investors and the improved sense of financial security tends to bump up consumption, commonly defined by economists as the "wealth effect." This increase in spending theoretically results in higher incomes and profits, which in a virtuous cycle eventually supports economic growth.
Year to date, the MSCI Emerging Asia Index has risen 12.7 percent, trumping the MSCI Asia Pacific Index's 11.05 percent increase and the MSCI World Index's 4.75 percent gain over the same period. Within emerging markets in Asia, China leads the pack with a 37.50 percent jump.
However, consumption rates across the region were less robust. China's retail sales notched up 10.6 percent in the first quarter of 2015 from a year earlier, while Hong Kong saw sales rise 14.9 percent in February, on the back of surging demand sparked by the Lunar New Year. Meanwhile, retail sales in South Korea and Singapore fell 5.7 and 7.4 percent on-year, while Indonesia's annual sales grew 16.5 percent in February.
Slow wage growth
A slowdown in real wage growth to 2.0 percent in 2014 is the main culprit, according to a HSBC report released last week. Average real wage growth was at 3.3 percent in 2013.
"This means households cannot increase their real consumption by as much as before [based on] labor income alone… in particular, workers in Hong Kong and the Philippines reported a decrease in their purchasing power last year," HSBC said.