5 demographic trends driving investment profit

Emma Wall  |  06/04/2016Text size  Decrease  Increase  |  

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 ageing 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 behaviour, 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 behaviour 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, behaviours 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.

Video Archive...

Shifting fortunes for ANZ, more of the same for CBA in 2017
12/01/2017  Australian banks are well-positioned as they head into 2017, with ANZ moving from least profitable in 2016 to become one of the sector's top performers and CBA remaining an investor favourite.
Is Trump a threat to emerging markets?
12/01/2017  Is President Donald Trump a threat to emerging market returns? Paul Jackson from the UK-based Source ETF considers the outlook for sector and where investors can find the best opportunities.
Platinum, Aussie banks and Peter Warnes among top interviews of 2016
22/12/2016  We look back on some of our most notable interviews of the year, as Morningstar analysts and external experts helped us delve into some of the biggest events that shaped Australian and global markets in 2016.
Oil price finds sweet spot, while mining hits rock bottom
20/12/2016  The rise in oil prices should see improved performances from Australian producers in 2017, while mining services companies will continue to struggle amid weaker Chinese demand, says Morningstar equity analyst Mark Taylor.
How Greek mythology can make you a better investor
07/12/2016  Don't be over confident or follow the herd, and like Odysseus, learn to have yourself "tied to the mast" when it comes to long-term investing.
Supermarket headwinds prompt fair value cut for majors
06/12/2016  Growing competitive pressures and a declining revenue outlook for Australia's two grocery giants now look to be part of a longer-term, structural shift.
What returns should you expect from markets?
01/12/2016  As market risks rise, investors must adjust their profit expectations--gone are the days of 8 per cent returns. But there are still growth opportunities out there if you know where to look.
Why healthcare stocks got a bump from Trump
28/11/2016  Australian healthcare and pharmaceutical companies continue to enjoy a purple patch, and for various reasons including the recent US election result, explains Morningstar's healthcare equities analyst Chris Kallos.
Equity and hybrid investors react as bond prices tumble
24/11/2016  The negative correlation between bonds and equities is reasserting itself following the US election of Donald Trump, according to John Likos, Morningstar's senior credit analyst.
2 global themes that are finding favour among ETF investors
15/11/2016  Australian retail investors are increasingly turning to ETFs for specific tactical exposures to global themes, particularly in the context of large-scale market events such as US election 2016.
Maintain discipline and stick to fundamentals when selecting stocks
14/11/2016  Steer clear of fads, maintain a disciplined approach and focus on company fundamentals in building and maintaining your investment portfolio, says Anton Tagliaferro, investment director, Investors Mutual
How Trump could impact economic growth
10/11/2016  Slowdowns in trade and immigration could hold back the US, and infrastructure spending could boost GDP, but it's too early to make any major changes to our economic forecast, says Morningstar's Bob Johnson.
President Trump: What should you do?
10/11/2016  Donald Trump has beaten Hillary Clinton to become the 45th US president. What should investors do?
Software companies worth watching amid tech deployment phase
08/11/2016  Kate Howitt, portfolio manager at Fidelity International discusses some of the core phases in technological disruption and identifies software companies among those currently presenting opportunities.
Kerr Neilson hot, cold and tepid on Europe, US and China
07/11/2016  Platinum co-founder and CEO Kerr Neilson explains his views on the major global markets and outlines where he sees opportunities--and where he doesn't.
Is Inghams a moat-worthy investment?
02/11/2016  Morningstar's Ravi Reddy discusses the upcoming float of poultry product producer Inghams, and whether it's in investors' interests to subscribe for shares in the IPO.
3 best ideas in healthcare
26/10/2016  Morningstar's Chris Kallos looks at some of the most compelling ideas in Australian healthcare, while also reaffirming the importance of the uncertainty rating and how it pertains to the sector.
Exercise caution and let some cash build
24/10/2016  Morningstar's Peter Warnes provides a near-term outlook for equities markets, while also sharing his thoughts on the upcoming Ingham's IPO.
Bogle forecasts low stock and bond market returns
21/10/2016  Warning of "much lower market returns" ahead, Vanguard founder Jack Bogle urges investors to seek low-cost investment products. From Morningstar US.
Finding the right flavour ETF amid expanding ETP menu
13/10/2016  From a relatively vanilla selection of exchange-traded funds (ETFs) on offer in the early 2000s, Australian investors can now choose from a wide range of exchange-traded products to suit various tastes.