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The Rising Tide of the Digital Economy

South-East Asia, despite representing just 8% the global population, has one of the largest groups of millennials.1 The long-term growth potential of personal disposable income, a hyper internet-engaged young population and a meaningful increase in smartphone penetration rate, presents an attractive opportunity for the digital economy to flourish. We’d expect to see long-term value creation on the back of a rising number of consumer technology platforms, and believe it likely for super apps to emerge in Association of Southeast Asia Nation (ASEAN) economies, as seen in the United States and China.

ASEAN Internet Platforms Boosted by COVID-19 Lockdowns

The South-East Asian population spent on average over an hour a day on the internet during COVID-19-imposed lockdowns, while the internet sector provided access to essential goods, healthcare, education, entertainment and helped businesses keep the lights on. The internet became an indispensable part of people’s daily lives.

Under this trajectory, industry reports estimate the ASEAN internet economy should exceed US$100 billion in gross merchandise value (GMV) in 2020 and reach US$309 billion by year 2025, where e-commerce and online travel will likely become the two largest verticals by revenue.2 By country, Indonesia is the largest in scale and is fertile ground for large internet platforms to expand, in our view.

A US$250 Billion Opportunity by 2025

The South-East Asia e-commerce market is expected to expand at a compound annual growth rate of around 30% by 2025 from a low base to reach almost US$250 billion, where e-commerce penetration for South-East Asia will likely reach 27%, potentially lagging China by 5 years and South Korea by 5-7 years.3

Indonesia’s Digital Economy

With the world’s fourth-largest internet user base of 171 million and a fast-growing middle-class population, Indonesia's internet total addressable market (TAM) is poised for continued robust growth, with US$228 billion of gross transaction value by 2025, up from US$49 billion in 2019.4 Compared to China, Indonesia’s online penetration in each vertical has room to grow and catch up with its peers. However, we see several challenges that may impact Indonesia’s expansion through the country’s sparsely-populated cities, underdeveloped infrastructure, slow growing low-income thresholds and limited finished goods manufacturing facilities.

The current competition among established players remains intense, in light of huge investments in these internet platforms to support growth. Besides online marketplaces, social media platforms such as Instagram and Facebook have long been a popular source for online transactions.

Major players for Indonesia’s e-commerce industry include Shopee, the e-commerce arm of Sea Ltd., Tokopedia, which recently merged with local ride-hailing platform GoJek, Lazada, Bukalapak and Blibli. Shopee and Tokopedia continue to gain positive momentum as a result of the platforms’ comprehensive product offerings, shopping experience and large-scale promotions and subsidies provided to attract users and merchants.

As competition heats up between South-East Asian e-commerce players, we believe the current environment could provide ample opportunities for those in the digital economy to thrive. The internet sector is one of many areas which accelerated on the back of COVID-19, and coupled with a hyper-engaged population, we believe this could present some long-term opportunities.

Celia Qiu
Investment Analyst

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1 United Nations, Department of Economic and Social Affairs, Population Division, 2020.
2 Source: Google, Temasek, and Bain, e-Conomy SEA 2020, November 2020.
3 Source: Mirae Asset Estimates, June 2021.
4 Goldman Sachs Global Investment Research, March 2020. Gross transaction value includes ride hailing, e-commerce, payment, food delivery, online travel agencies, online advertising and gaming.

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