By 2020, half of ASEAN’s population is expected to be aged under 30

Southeast Asia’s economic boom is creating a new middle class, one which will help shift the balance of global demand over the next few decades and open up opportunities for the region and the world.

Growth in the member economies of the Association of Southeast Asian Nations (ASEAN*) is no longer primarily driven by exports and manufacturing as Southeast Asia becomes one of the world’s leading consumption hubs.

With about 600 million people, ASEAN countries contain only around half of India’s population, but collectively they generate a larger GDP – forecast to be growing by 6 per cent a year on average by 2020 and be worth some USD4.7 trillion.

With growing purchasing power comes greater aspiration, driving stronger demand for property, cars, education and healthcare

Asia is likely to be home to more than half of the total global middle class population by 2020, and ASEAN is expected to deliver more than USD2 trillion of new consumption, according to the International Monetary Fund. Half of ASEAN’s projected population will be aged under 30.

With growing purchasing power comes greater aspiration, driving stronger demand for property, cars, education and healthcare. And as populations age, new ways will be needed to save for retirement, fund healthcare and ensure adequate insurance protection in the absence of well-established social security systems.

Consumption patterns are likely to be uneven. Consumers in developing economies are likely to continue directing large portions of disposable income towards improving general living standards, whilst those in mature markets will tend towards consumption and investments.

For example, discretionary spending by more affluent middle-class populations in Singapore, Malaysia and Thailand is far more pronounced. Spending in Indonesia and the Philippines is focused on vehicles, appliances and education services to enhance quality of life. Vietnam has the highest rate of credit card ownership, but its emerging middle class is only starting to develop an appetite for luxury goods.

Wealth in ASEAN is set to grow even faster than in mainland China over the next five years. That in turn is likely to drive developments in financial markets and has the potential to reshape savings and investment choices. ASEAN has one of the highest saving rates in the world at around 30 per cent and international reserves amounting to USD800 billion.

For now, financial assets remain heavily concentrated in cash and, in some markets, concentrated on single assets such as stocks. Evidence elsewhere in the world suggests wealth creation changes investment behaviour. That implies ASEAN savers are on course to become builders of diversified portfolios of assets invested beyond their home markets. Regional financial integration and market liberalisation, such as that unfolding in mainland China, will allow for more efficient diversification.

It is easy to be impressed by the potential of the world's next big consumer market, but difficult to ignore the challenges. ASEAN members need to improve their infrastructure, stabilise their labour market and narrow the income gap to ensure that the benefits of regional integration are widely shared. Greater transparency in the financial markets and regulation to facilitate investment flows will be needed to build a more mature financial services industry.

The rise of the middle class will continue to be the big story for Southeast Asia’s economies over the coming years. The promise of growth will transform one of the most overlooked regions in the world into one of the most important.

*The Association of Southeast Asian Nations (ASEAN) is composed of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

A version of this article appeared in the South China Morning Post in May 2015.