How Asian Markets Could Develop in the Coming Decades

We look at how the demographic dividend, improving educational attainment, and a desire to diversify could boost Asian bond markets.

A Demographic Window of Opportunity

The term demographic dividend describes the boost an economy receives when it has an elevated proportion of working-age people compared to those of non-working-age. This should translate to more robust economic growth given a larger labor force; however, other factors, like educational attainment and quality healthcare, also play a role in economic development. The demographic dividend occurs when high fertility rates are combined with improved healthcare. This advantage will be transitory as fertility rates decline, and the proportion of older non-working people increases¹. The demographic dividend has yet to peak in some markets, such as Indonesia and Laos, where a high proportion of young people relative to older people exists, but others, like South Korea, have passed the stage where they can benefit from such an ascendancy.

Improving Educational Attainment Will Accelerate Asia’s Higher-Value Industries

Several Asian governments are attempting to transition their economies from low-value, low-skill manufacturing exports towards higher-value industries². These sectors, such as semiconductor manufacturing, tend to require a labor market that is more educated to an advanced stage. One way to measure a workforce's educational level is by examining the percentage of eligible individuals who enroll in tertiary-level education. There is significant divergence across the ASEAN region: Singapore has the highest rate, with 98% of its eligible population enrolled, while Laos has the lowest rate, at only 13%. This disparity in education levels is also mirrored mainly in birth rates. More economically developed economies have lower birth rates, which means parents can devote more resources to their child’s education costs³. In markets with a higher birth rate, it can be more difficult for parents to find the resources to educate all their children to a tertiary level.

That said, a study published in June 2025 demonstrated that Asian markets should not focus solely on increasing the quantity of education, as they would benefit more by fostering technological progress and labor-capital substitution.

The focus in many Asian markets is now on moving up the value chain⁴. This means economies will shift away from labor-intensive, low-cost manufacturing segments towards higher-value-added sectors, such as semiconductors, electric vehicles, batteries, and pharmaceuticals.

According to the World Economic Forum, trade among ASEAN members is forecast to grow robustly over the next decade. Moreover, by 2031, ASEAN exports are expected to increase by 90% from 2024 levels, compared to an anticipated 30% expansion in global trade⁵.

High-Technology Industries Should Attract Investment

The development of Asia’s high-technology sectors will continue to lure domestic and foreign investors. Companies in Asia's high-tech industries, such as semiconductors, may choose to issue bonds in both foreign and local currency terms to help finance their development. As capital markets continue to deepen, this provides investors with a wider range of opportunities.

Asian Local-Currency Bond Markets Should Continue to Expand in Tandem with Economic Development

During the second quarter of 2025, ASEAN member states issued the equivalent of US$653.8 billion in local-currency bonds, bringing the total outstanding issuance to the equivalent of US$2.6 trillion, which is 9.1% of the regional total⁶. More broadly, China remains the dominant issuer of local-currency bonds in the region, with aggregate bonds outstanding totaling around US$23 trillion as at the end of June 2025⁷.

While issuance will vary over time in response to interest-rate changes and other factors, Asian bond markets should continue to broaden and deepen. The main holders of sovereign local-currency bonds across the region tend to be institutions with a longer-term perspective, like banks, pension funds, and insurance companies. These investors are likely to hold bonds rather than actively trade them, which may help mitigate volatility. Foreign investors tend to have a shorter-term investment horizon, and so net flows in and out of bond markets can be quite volatile from month to month⁸.

US Dollar Uncertainty Boosts the Attractiveness of Asian Local-Currency Bonds

Investors have been diversifying away from holding US dollar-denominated assets as doubts about the fiscal trajectory of the US economy increase⁹. The US labor market has weakened recently, which was a key factor in the decision by the US Federal Reserve (Fed) to reduce interest rates by 0.25 percentage points in September 2025 – the first cut since December 2024¹⁰. Furthermore, the personal consumption expenditures (PCE) index, which stood at 2.6% year on year at the end of July 2025, remains above the Fed’s target rate of 2.0%¹¹. As such, the US central bank will be concerned if the unemployment rate continues to worsen and will, to some degree, be stuck between trying to support the economy with lower interest rates while not overly fueling inflation¹².

Asian bonds have benefited from investors seeking alternative exposures to US-dollar bonds. In August 2025, foreign investor inflows to Asian bond markets totaled US$14.06 billion – the highest monthly level since 2019¹³. Indeed, the recent Fed interest rate cut, coupled with guidance for two more reductions in 2025¹⁴, gives some Asian central banks greater scope to continue cutting interest rates to help support their domestic economies¹⁵.

Ultimately, Asian local currency bonds continue to present an attractive opportunity for investors who want to gain exposure to the diverse economies of the region, while also receiving income and the relative stability of fixed income compared to equity market investments.