Aberdeen Investments has told Chancellor John Healey the UK risks falling further behind Asia on retail investing unless he acts in October’s Budget.

Research by the firm found that Japanese households now hold 9% of their wealth in equities and mutual funds outside pensions, compared with just 8% in the UK.

In the report titled: Beyond Tell Sid: How Asia built a new generation of investors, it showed how Japan only started to actively encourage retail investment from around 2010, as the country reports progress despite households still keeping 35% of wealth in cash, compared with 15% in the UK.

Aberdeen also looked at other Asian countries as part of its report on examples the Chancellor could follow at his next Budget, highlighting that Singapore’s household exposure to equities and mutual funds is higher still at 11%, while South Korea is level with the UK and continuing to narrow the gap with other countries amid a retail investing boom in the country.

While South Korean households still hold 65% of wealth in property (compared with 50% in the UK), the country has built one of the world’s most retail-driven stock markets, with individual investors estimated to account for around 60-70% of annual trading activity in its stock market, which is part of a broader trend across Asia.

Property accounts for 60% of household wealth in China and more than half in India (51%).  The report showed that India had grown one of the world’s most dynamic retail investing markets despite equities and mutual funds accounting for only 5% of household wealth.

Aberdeen said: “Initiatives such as Japan’s expanded NISA programme, India’s national financial education strategy and Singapore’s efforts to strengthen its equity market, as well as mainland China’s reduction of stamp duty on share transactions, all offer lessons for policymakers seeking to broaden investment participation.

“Recent dramatic market falls show that this is not without risk, either for investors or governments - with greater participation comes greater attention.” 

The investment firm called on Mr Healey to scrap stamp duty on UK shares, fix the plumbing of financial markets and keep fixing it, strengthen shareholder rights for retail investors, take a long-term approach to financial literacy, stop overcomplicating investing and keep talking about the benefits and risks of long-term investing.

It found in the report that across Asia, different countries have taken different routes.

Japan: Abenomics reforms boosted retail investing through stronger corporate governance, better shareholder returns, lower investment minimums and an expanded tax-free NISA scheme.

South Korea: Tackled the ‘Korea discount’ with governance reforms, stronger shareholder rights, tax incentives for dividends and lower transaction taxes on shares.

India: Combined financial education with national campaigns encouraging households to diversify beyond property and gold, led by the successful ‘Mutual Funds Sahi Hai’ initiative.

Singapore: Improved market participation through exchange reforms, government-backed research, dual-listing initiatives and stronger company-investor engagement.

Hong Kong: Built deep, liquid and globally connected capital markets through strong infrastructure and programmes linking domestic and international investors.

China: Cut stamp duty on share transactions, introduced tax-advantaged pensions and strengthened investor protections to boost participation, confidence and market liquidity.

Xavier Meyer, chief executive at Aberdeen Investments, said: “Many Asian countries are grappling with the same challenge as the UK: ageing populations, increasing pressure on public finances, and the need for households to take greater responsibility for their long-term financial wellbeing.

“That’s not to say that these Asian nations have already solved the challenge. Recent market volatility in South Korea is a reminder that building an investing culture must go hand in hand with diversification, product suitability and market resilience.

“But having started the drive to build an investment culture later than the UK and other developed markets, Asia is catching up fast, and there’s some learnings we can take from their journey and that includes from the bumps in the road, too.” 

Bob Gilhooly, senior economist, Aberdeen Investments, says: “The UK is not alone in facing an imbalance in household wealth. It is mirrored across parts of Asia, where high savings rates and strong preferences for property have long dominated household wealth. What is striking is that countries which once had little culture of investing are now closing the gap and in some cases now exceeding the UK in terms of retail investment participation.

“This highlights an important point for the UK as well as for Asia. The heavy concentration of household wealth in property across parts of Asia, notably China and South Korea, closely mirrors the UK’s long‑standing imbalance and leaves families overly exposed to housing downturns.”

Peter Branner, chief investment officer at Aberdeen Investments, said: “The lesson from Asia is that successful investing cultures are built gradually through a series of reforms that make investing more accessible, attractive and rewarding.

“We should be clear that there are two ambitions here seen globally. One is to help more people build long-term financial resilience. The other is to create stronger capital markets that attract companies, capital and innovation.

“The two often go hand in hand, but they are not identical. People should invest where they can achieve the best long-term outcomes for themselves. Equally, policymakers should be asking what makes the UK an attractive and competitive place to invest and do business. The most successful markets manage to deliver both.”

The Treasury has been contacted for comment.