By Paul Rickard
Many Australian businesses are highly geared to the affluent middle class consumer in Asia. High profile stocks such as ASX-listed Blackmores and Bellamy’s readily come to mind, with their sales of vitamins and organic food products to Chinese consumers.
But there are also hundreds of others, usually privately-owned, Australian businesses providing products and services to the booming consumer market in Asia. The Asian century is finally upon us!
And while this is the “now”, companies (and investors) will need to re-think how they approach Asia because the demographics are changing. According to Deloitte, the balance of power in Asia is shifting.
In its Voice of Asia (third edition) report, Deloitte says Asia will be home to 60% of the world’s over 65s by 2030. Asia’s over 65s will be the largest and fastest growing market in the world, growing from 365 million people in 2017 to 520 million people by 2027. By 2042, just a quarter of a century away, the over 65s in Asia will exceed the entire population of the Eurozone and North America combined, and number 1 billion shortly after the middle of the century.
While the ageing population will create challenges for growth in some nations, it will also generate a growth cluster of new business opportunities, with the potential to produce some very large winners at an industry level.
Country winners and losers
According to Deloitte, the median age in Japan is now over 47 years. It is the oldest country in the world, and the average resident in Japan today is 25 years older than was the case in 1950. Hong Kong, Korea and Singapore all sit well above the median age for Asia at a whole of 31.0 years. Even China at 37.6 years is on the high side, and interestingly, is the same as Australia.
At the other end of the scale, The Philippines at 24.6 years is the youngest, followed by India and then Indonesia (see table below).
Median Age by Country in 2017 (yrs)
Projecting ahead and looking at the impact of both an ageing population (in some countries) and the “demographic dividend” of an increasing workforce in others, Deloitte calculates that the biggest losers from demographic change over the next decade will be Hong Kong, Taiwan and Korea. China will also be a loser, with demographic changes reducing the Chinese economy by 4.2%.
Demographic addition/subtraction to size of economies over next decade
Winners will be India, The Philippines and Indonesia. Following the rise of Japan and China in decades past, Deloitte predicts that India will drive the third great wave of Asian growth, with its potential workforce set to rise from 885 million people today to 1.08 billion in twenty years’ time. And like Japan and China before them, it won’t only be more workers, but better trained and educated workers with rising economic potential.
Cynics will say that they have heard this before about the potential for India and that it has consistently failed to deliver. The gap between China and India has increased, not decreased, no doubt in part due to the “price” India pays for being the world’s largest federated democracy. Time will tell, but on paper at least, you can’t argue with the demographic factors at play.
Industry winners and losers
An ageing population will create huge tailwinds for some industries, and headwinds for others. In the former, health, medical and pharmaceuticals; financial services such as asset management, wealth advisory, insurance and the management of retirement savings; travel, particularly airlines and luxury accommodation; luxury goods; age appropriate housing and consumer goods purchased by the elderly.
Headwinds will be slower to develop because the Asian population is increasing in aggregate. Long run losers are likely to include goods consumed by babies, kids and young adults; childcare services; educational services; cafes/takeaway food and the entertainment industry.
Minimising the impact of ageing
Deloitte suggests that Asian countries can act to minimize the impact of an ageing population and declining workforce on economic growth. Strategies include raising the retirement age; encouraging a higher level of participation by women in the workforce; welcoming working age migrants; re-skilling the workforce to be more productive and increasing birth rates.
Act sooner rather than later
Like all megatrends, the business winners will be those who identify the trend early and act appropriately. Markets and investors position for tailwinds, and prefer to exit positions facing headwinds when the wind is more like a breeze rather than a gale. Be prepared to act sooner rather than later.
If you would like to see my interview with Chris Richardson from Deloitte Access Economics, you can view it here. The full Deloitte paper can be downloaded here.
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