Demographic shifts: unlocking investment potential

Maggie Elliott is an investment writer with more than 30 years’ experience writing about the banking and investment management industries. She is founder and partner of Defoe Consulting.

Maggie Elliott, guest author
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At a glance

  • The global population has exploded over the last 75 years, with the number of people over age 65 projected to be more than twice the number of children under five by 2050
  • Businesses across many industries are pivoting to address the challenges of an ageing population
  • Investors should overlook the power of the grey pocketbook at their peril

As the global population ages, retirees will need better health and social care options, more assisted-living housing, and flexible retirement solutions. That's good news for investors.

We are getting older and also richer, at least in the developed world. The global population has exploded over the last 75 years, growing from 2.5 billion people in 1950, to over eight billion now. That figure could rise to 10.4 billion by 2080.

Yet the pattern of this growth is far from uniform, although it's based on significantly lower mortality rates everywhere. Parts of Asia and Africa are still seeing high birth rates, and as a result, many more young people. In Europe, North America and Japan on the other hand, populations are ageing rapidly due to the collapse in the rate at which babies are being born. 

Overall, by 2050, the number of people over age 65 is projected to be more than twice the number of children under five, driven by the continuing decline in the birth rate. As LGT senior equity analyst Dr. Tilman Dumrese explains, "It is an avalanche that's moving in slow motion."

Pivoting to address the challenges of living longer

An ageing population presents societal and economic challenges for governments and businesses. As life expectancy increases, so too does the likelihood that people will be living longer with chronic diseases like diabetes, heart problems, and cancer. Longer lives also imply longer retirements, with the attendant requirement for better pension provision and age-appropriate housing. 

Businesses across many industries are pivoting to address these challenges. Take the pharmaceutical industry, for instance. Scientific advances, especially in genomics, are encouraging drug manufacturers to create new diagnostic tests and therapies that can provide truly personalized medicine. 

One of the most successful developments so far is the ability to predict the chances of success of a given cancer therapy for a particular patient in advance of treatment, rather than relying on trial and error to find out if it works or not. This is obviously a huge advantage for the patient, the pharma company, the healthcare provider, and any medical insurer, in the highly cost-sensitive health spending market.

The silver society is facing health challenges in ever greater numbers’ - Dr. Tilman Dumrese, Senior Equity Analyst

According to Dumrese, it isn't just drugs and diagnostics that are leaping ahead. Medical technology manufacturers, including those supporting the care of non-communicable diseases like heart and eye conditions, are working on developing treatments that can be scaled using software solutions and artificial intelligence. The focus is on leveraging technology to address the health challenges that the so-called silver society is facing in ever greater numbers.

As healthcare providers develop new and better ways to support longer lifespans, the costs of this care continue to grow. According to OECD forecasts, healthcare spending is expected to rise faster than GDP in developed countries. Commercial healthcare and nursing facilities are likely to be among the beneficiaries.

Robotics and Artificial Intelligence are in high demand

The global market for industrial and service robots is predicted to exceed USD 500 billion - and industrial companies with a clear focus on mechanical engineering are poised to benefit. 

The healthcare industry already faces a shortage of workers. Ongoing demographic change, resulting in fewer people of working age alongside the growing retiree population, is exacerbating this trend. So robotics and artificial intelligence will be in high demand in healthcare and many other industries. Companies focused on the automation of work processes will benefit from this ongoing structural shift.

An ageing workforce presents specific issues for policymakers. If fewer younger workers are available, many industries will need to find ways to replace repetitive, heavy labour wherever possible. Robotics offers an alternative to often less acceptable solutions like promoting immigration, or raising the age of retirement. The global market for industrial and service robots is predicted to exceed USD 500 billion in 2030, up from just USD 45.3 billion in 2020. Industrial companies with a clear focus on mechanical engineering are likely to benefit.

Healthy lifestyles trends

The increased awareness of healthy lifestyles continues to favour market growth in products that support this trend. Anti-obesity drugs have been a post-pandemic success story. And global market volumes of organic food and beverages are slated to grow at a compound rate of 13 per cent through to 2030 from a current base of USD 200 billion today. Dietary supplements will also benefit from accelerated growth. 

Older, retired people in developed and developing countries have more leisure time, and often bigger bank balances. While the travel industry was particularly hard hit during the covid crisis, and is taking a while to bounce back, Dumrese forecasts that "the desire to travel remains unabated and should continue to generate demand in the future. That means that the long-term prospects for this industry remain intact."

Creating continuity of care communities 

Finally, investors should not overlook the growing need for financial solutions that help people prepare for what could be 25 to 30 years of retirement, possibly including a period of nursing care at the end. Providers of pensions and life insurance products are likely to benefit from the growing need for security in old age. The fact that not all countries offer modern social security systems means that the need for private pension solutions is a further growth driver for the financial services industry.

Older people have different housing needs to students or young families. Some property companies in the US and the UK are now focusing on the growing assisted living sector. Serving a largely self-funded clientele, developers are creating communities that offer continuity of care extending from independent living for the "young-old" of 55-plus, through outpatient medical facilities, to nursing and end-of-life care. This approach allows older couples to live together even if they have quite different needs. Other companies are focusing on specific segments, such as assisted living, hospice care, or nursing facilities. 

Whether in the healthcare, automation, wellness, travel, financial services, or property industries, investors overlook the power of the grey pocketbook at their peril. It's a trend fuelled by demographic change that will be with us for decades to come.

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