A week doesn’t go by without hearing about the problems which will be created by the world’s rapidly ageing population. Much of the focus is on how fewer people will mean lower future economic growth. The likes of Harry Dent have popularised the idea but it’s also been given intellectual heft by thousands of demographic consultants.
There’s no doubt that the world is getting older. Many will be surprised to learn that even Asia has serious issues on this front. For instance, fertility rates in South Korea, Hong Kong and Singapore are below those of European countries such as Italy and Germany, which are most commonly associated with demographic problems.
The post today though will look at the silver linings associated with ageing demographics. Older populations don’t necessarily equate to lower economic growth. Boosting productivity is the key to offsetting declining working-age populations. Without it, there will indeed be much lower growth but we’re hopeful that the seriousness of the issue will prompt real solutions to address productivity.
Also, having fewer people in future may end up being the best thing that could have happened to us. There’s considerable evidence that we’re now living in a resource-constrained world. One where we may soon face a food crisis as agricultural inventories dip to decade lows thanks to lower crop yields and increased demand from Asia. Fewer people should mean reduced resource consumption and may actually save us from not having enough food to feed the planet.
For investors, ageing demographics and resource constraints do mean the odds favour slower economic growth in the decades ahead. Yet these issues will also create some tremendous investment opportunities in areas such as biotechnology, robotics, agriculture, and renewable energy.
The key takeaways for investors from all of this are:
- You should prepare for a slower growth world. Ageing demographics and resource constraints make it more likely than not.
- Parts of the the world’s fastest growing region, Asia, appear particularly vulnerable. That’s because favourable demographics and cheap resource extraction have provided significant tailwinds to economic growth of late. And those trends are set to reverse.
- Investment returns may be lower than in previous decades. Given this and the ageing demographics, yields/dividends on assets should take on greater importance. In other words, the current search for yield may not be cyclical, but generational.
- You’d think the search for yield would create a natural demand for the safety of bonds, but given current pitifully low bond yields, that may not be the case.
- That could create sustained, long-term demand for the likes of commercial and industrial property. Residential property in most countries offers much lower yields than these other property segments and therefore won’t be as attractive.
- Yield in appreciating currencies will be important. Particularly given the current determination of central bankers to debauch their currencies. We prefer Asian currencies over the West given sounder balance sheets. On a long-term basis, we like the Chinese yuan (though not on short-term basis), as well as the Singapore and New Zealand dollars.
- Specifically on stocks, you should not only consider those with sustainable, strong yields but also look at how the potential for elevated resource prices may impact companies in your portfolio.
- There will also be significant investment opportunities in areas which provide solutions to some of problems of ageing demographics and resource constraints. Robotics to improve work productivity, for example. Biotech to help us live (and work) longer. Healthcare technology which helps mitigate rising healthcare spending. And in agriculture and renewable energy as resources constraints become more urgent.
AC Speed Read
– There’s much doom and gloom commentary on the world’s ageing demographics, popularised by the likes of Harry Dent.
– But there are important silver linings not often mentioned: an older world doesn’t have to result in slower economic growth if we can boost productivity and a declining population in future decades could put us on a more sustainable path in a resource-constrained world.
– The twin themes of ageing and resource constraints do mean though that the odds still favour lower economic growth in coming decades and investors should prepare their portfolios accordingly.
– But these themes will also provide some tremendous investment opportunities in the likes of biotechnology, agriculture, renewable energy and robotics.
This post was originally published at Asia Confidential: