5 Demographic Trends Driving Investment Profit

What is the influence of workers and consumers on stock markets? Dr Amlan Roy explains the implications for asset prices and capital flows, emerging markets and sustainability

Emma Wall 24 March, 2016 | 1:05PM
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Emma Wall: Hello and welcome to Morningstar. I'm Emma Wall and I'm joined today by Dr. Amlan Roy, Head of Demographics and Pensions for Credit Suisse.

Hi, Amlan.

Dr. Amlan Roy: Hi, how are you?

Wall: Very well. Thank you. How are you?

Roy: Not bad. Good.

Wall: So, when many people talk about demographics driving markets, they are talking about demographics and they are talking about age, they are talking about a population aging and that affecting markets. But you are saying demographics is not that simple.

Roy: Yes. In fact, people just look at a very small characteristic called age. Your consumption, my savings, my risk taking behavior, all depends on a very complex set of factors, which includes our family background, which includes your gender relative mine, which includes where you got educated, what our parents did and things like behavior and psyche is formed based on experiences. So, we are not super-clones or superhuman beings who behave super-rationally and that needs to be understood by investors, by economists, by policymakers.

Demographics is not predictable. It's not about the long-term. It's about how you and I change day-to-day. And we change day-to-day because technology is happening, because foods are changing, behaviors are changing, fashions, fads, et cetera. What goes on within two years is so hard to (myriad) that psychologists as well as psychiatrists and doctors always want to know and we still haven't fathomed everything that goes on, but that affects how we behave, how we consume, how we spend. So, demographics is much more than age.

Wall: But there are some unifying factors, aren't they? You mentioned consumption. Depending on… both a baby and a 101-year-old woman are both consumers of some kind, aren't they?

Roy: Exactly, and that's the beauty. It's all about the distributions between age 10 minutes to age 102, we've got multitudes of men, women, children across four or five generations. And even if I take you and assume your high school best friend is in the same city and you meet after, let's say, five or 10 years, it's quite likely that you don't go to exactly the same shop, et cetera and people evolve over time.

The evolution of experiences and psychology is so different and that's why when we look at distributions, the rich people behave very differently than the poor people. The ultra-high-net-worth billionaires are even more different than millionaires and we need to understand how gender differences, health differences, education differences, access differences all translate into which sectors become important for investors. I'm not just telling you countries.

Countries will be important. But the unifying spread of sectors that I think are important, are going to be pharma and biotech because health becomes important at old ages Alzheimer's and Parkinson, at young ages diphtheria, malaria, tuberculosis.

Financial products, how should the baby boomers deal with 30 years, 40 years post-retirement? Equally so, how should somebody coming out of university with 80-plus years to look forward to before they die deal with their whole life span of savings? Technology is disruptive and other things.

Third is leisure and luxury. People nowadays aren't content with one car. They want the best car, the best phone, et cetera. It's a status symbol and with growing information, we have the wannabes from Ukraine and Russia wanting to be the Bill Gates and the Warren Buffets too. So, that kind of exhibition is more keeping up with the Joneses affects leisure and luxury.

Natural resources; in a world where people are growing old, you can't have all skyscrapers because some people would like to get to the doctor, to the sea, to the nurse and to airports quickly. Therefore, we have to rethink housing; we have to rethink medical care, healthcare, shopping and everything that old people need as well as very young and five generations.

And lastly, going with it is, natural resources and emerging markets are going to be important because you want to sell to more and more people. People are shrinking in some of the rich countries like Japan, Hong Kong and in some other countries such as Italy and Germany. So, to expand the universe that you want to sell to, it's easier to sell to somebody who doesn't have that product and wants to buy that rather than what somebody wants to replace another product by.

So, I think sectors are going to be very important. But also what's going to be important is how do we deal with a world where growth is going to be less, where taxes are going to be more and how do we square the circle across affordable, responsible living across generations so that one generation doesn't inordinately get very, very, very much rich, the 65 to 74-year-olds, compared to the zero to 20-year-olds.

Wall: Amlan, thank you very much.

Roy: Thanks.

Wall: This is Emma Wall for Morningstar. Thank you for watching.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Emma Wall  is former Senior International Editor for Morningstar