Moz Afzal, Chief Executive Officer of EFG Asset Management addresses a topic of much industry debate and in a recent conversation with HSBC’s James Pomeroy he discussed how a societal shift of this magnitude is already, and will continue to, impact almost every area of the global economy.
Globally the number of children being born is declining at an unprecedented rate. It is happening in the developed world, where birth rates across nations like the UK,[1] the US[2], and Japan[3] are hitting record lows. But it’s also a major issue in developing markets. For example, China’s population fell for a second consecutive year in 2023[4] while the fertility rate in India is thought to have dropped by a fifth over the last two decades[5].
The reasons behind this downward trend are complex with the fall-off being driven by everything from rising costs and urbanisation, lack of access to healthcare and the detrimental effect on career prospects for women[6].
The implications for the world are clearly vast. Recent research warns the vast majority of countries around the globe will experience population decline by the end of the century[7].
Nearer term, fewer births coupled with increasing life expectancies are leading to much older populations. In fact, the World Health Organization predicts that the proportion of the world’s population aged 60 years or over will nearly double to 22% by 2050[8].
So, with this in mind, here are four areas we believe will face noticeable disruption:
1) The golden age of automation
An aging population is likely to open the door to a wave of automation. Firstly, a greater number of older individuals will mean a greater need for assistance with everyday tasks. This could act as a natural accelerator for the adoption of everything from autonomous vehicles to wearable health monitors and digital assistants in the home.
On a more macro level, aging populations also tend to lead to a declining labour supply[9], particularly in developed nations, where accumulated wealth is enabling many to retire early.[10] It could become harder and more expensive for businesses to find workers – particularly highly skilled and experienced ones. And with technology becoming ever more sophisticated and expanding its reach across more and more industries, the decision to automate jobs, where possible, will become a much easier one.
Disruptive stocks leading the way in innovation as we enter the golden age of automation could enjoy a strong growth trajectory.
2) A revolution in recreation
With older age groups – on average – tending to be wealthier and having more free time for recreation[11], we anticipate the coming years to herald a positive shift for stocks in recreational sectors.[12] Equally, a global decline in fertility rates and younger individuals either choosing to have fewer children or having children later in life[13] results in more disposable income that would otherwise be allocated to childcare.
The biggest beneficiaries of all are likely to be travel and tourism stocks, with annual global expenditure expected to increase to more than US$9 trillion by 2029[14]. But another less obvious group of stocks positioned to receive a boost are those in the pet sector. With younger generations, in particular[15], spending more money on household pets[16], Bloomberg believes the global pet industry will reach US$500 billion by 2030 from US$320 billion today[17].
3) Education headwinds
Lower fertility rates means fewer pupils in educational institutions moving forward. For instance, the UK Government already expects declining birth rates to result in nursery/primary and secondary school pupils dropping by 412,000 and 2,000 respectively by 2028[18]. The effect will become even more pronounced over time if fertility rates remain as low as expected. The anticipated decline in student numbers is already hitting public education funding in the UK and other nations[19].
A forecast reduction in addressable market sizes could also have a sustained downward impact on stocks operating in the education sector. It will be a challenge. But in our view the stocks that will be able to mitigate the headwind best will be the innovators leading the way as trends such as artificial intelligence, big data, and remote learning continue to penetrate the sector[20].
4) Housing Catch-22
The long-term relationship between aging populations, lower fertility rates and the housing sector is a complicated one.
There is a currently a housing crisis affecting some 1.6 billion people globally, according to World Economic Forum figures[21]. And research suggests an inability to get on the housing ladder is leading many individuals to delay having children[22] [23] – contributing to lower fertility rates. At the same time, however, because lower fertility rates are expected to lead to lower population sizes, less demand, and potentially lower house prices over the coming decades, developers are less inclined to build more houses today.[24]
It is something of a vicious cycle, and it needs a solution. We will be interested to see how the housing sector moves to address the issue from here.
These four areas are where we see the shift in global demographics having a profound impact. But the reality is, fewer births and aging populations around the world will affect every sector over time.
For investors, this is something to take into account in any long-term asset allocation strategy.
[1] https://www.theguardian.com/uk-news/2024/feb/23/birthrate-in-uk-falls-to-record-low-as-campaigners-say-procreation-is-a-luxury
[2] https://www.macrotrends.net/global-metrics/countries/USA/united-states/fertility-rate#:~:text=The%20fertility%20rate%20for%20U.S.,a%200.11%25%20increase%20from%202020.
[3] https://www.theguardian.com/world/2024/feb/28/birth-rate-japan-record-low-2023-data-details#:~:text=The%20number%20of%20births%20has,that%20would%20happen%20by%202035.
[4] https://www.reuters.com/world/china/chinas-population-drops-2nd-year-raises-long-term-growth-concerns-2024-01-17/
[5] https://asia.nikkei.com/Spotlight/Society/India-fertility-fall-puts-policymakers-on-clock-to-avoid-Japan-like-strain
[6] https://www.imperial.ac.uk/business-school/ib-knowledge/finance/ageing-populations-and-declining-birth-rates-are-they-really-such-catastrophe/
[7] https://www.aljazeera.com/economy/2024/3/21/nearly-every-countrys-population-will-be-shrinking-by-2100-study-warns#:~:text=Fertility%20rates%20in%20nearly%20every,the%20Lancet%20showed%20on%20Monday.
[8] https://www.who.int/news-room/fact-sheets/detail/ageing-and-health
[9] https://www.cipd.org/globalassets/media/knowledge/knowledge-hub/reports/avoiding-the-demographic-crunch-labour-supply-and-ageing-workforce_tcm18-10235.pdf
[10] https://ifs.org.uk/news/early-retirement-increasingly-concentrated-amongst-wealthy
[11] https://www.morganstanley.com/ideas/pet-care-industry-outlook-2030
[12] https://www.forbes.com/sites/neilhowe/2018/03/16/the-graying-of-wealth/
[13] https://www.who.int/news-room/questions-and-answers/item/population-ageing#:~:text=Why%20is%20the%20population%20ageing,people%20who%20are%20over%2060.
[14] https://www.statista.com/statistics/1093371/leisure-travel-spending-worldwide-outlook/#:~:text=The%20outlook%20for%20global%20leisure,is%209%2C332%20billion%20U.S.%20dollars.
[15] https://www.companionlife.co.uk/survey-reveals-1-in-6-people-spend-more-on-their-pets-than-they-do-their-partners-on-valentines/#:~:text=Millennials%20are%20most%20likely%20to%20spend%20money%20on%20their%20pets&text=Not%20only%20that%2C%20but%20the,(34.8%25%20vs%2026.8%25).
[16] https://www.morganstanley.com/ideas/pet-care-industry-outlook-2030
[17] https://www.bloomberg.com/company/press/global-pet-industry-to-grow-to-500-billion-by-2030-bloomberg-intelligence-finds/
[18] https://explore-education-statistics.service.gov.uk/find-statistics/national-pupil-projections
[19] https://www.telegraph.co.uk/news/2024/04/11/schools-face-closure-falling-birth-rate-hits-funding/#:~:text=Schools%20in%20England%20could%20be,Institute%20(EPI)%20think%20tank.
[20] https://hospitalityinsights.ehl.edu/education-trends#:~:text=Fortunately%2C%20the%20advent%20of%20the,potential%20to%20enrich%20gamified%20learning.
[21] https://www.weforum.org/agenda/2022/06/how-to-fix-global-housing-crisis/
[22] https://www.express.co.uk/life-style/property/1816994/property-ladder-first-time-buyers-homeowners-marriage-children
[23] https://res.org.uk/mediabriefing/the-housing-bubble-baby-boom-spiralling-uk-house-prices-mean-homeowners-have-more-kids-but-renters-postpone-starting-families/
[24] This was a point made on the podcast.
