The world population continues to grow; while more countries are seeing populations stagnate or shrink due to lower fertility rates or higher emigration. According to the United Nations (UN), over one in four people globally live in a country whose population has already peaked.1 At the same time, life expectancy increases and the world’s population is ageing. The UN’s ‘World Population Prospects 2024’ estimates that by the mid-2030s, people aged 80 and over will outnumber infants under one reaching 265 million and that the proportion of over 65s will double in the next three decades2.
Old age dependency ratio rises sharply
By 2050, Asian countries are expected to have the highest proportion of this age group. The problem is already acute in Japan and other Asian economies are following, as life expectancy increases. Around 40% of the population in Hong Kong, South Korea, and Japan will be aged 65 and over by 2050, compared with about 20% in many developed countries.3
This trend will create consequences for the global economy and financial markets.
Potential economic impacts from an ageing population
As we enter the “Silver Economy,” several developments that might occur due to the changing demographics:
A Slowing Economy. Without strong countermeasures, ageing populations can reduce workforce size, increase labour costs, weaken economic output and growth, and shrink government tax revenues, limiting investment capacity and increasing pressure on public finances.
Pension Pressures. Ageing populations place additional burdens on already stretched public pension schemes, threatening their viability, and potentially leading to funding gaps in other important government services.
Health Issues on the Rise. As the global life expectancy increases, the demand for health treatments, medication, and healthcare services, including home care and advanced medical treatments will increase.
Decline in Equity Investing. As investors transition into their “Golden Years,” they historically allocate their holdings out of equities and into more conservative instruments during their retirement years, to dial down investment risk.5 As the investment population ages, this trend can potentially have a broad impact on equity investing.
Asset Allocation Shifts. A Coalition Greenwich survey noted that after new technologies, an ageing population was cited as the most significant factor shaping their investment strategies. Industries that were considered most appealing were Healthcare (91%), Technology (84%), Energy (67%), Agrifood (63%) and Tourism (60%).6
The Affluent Seniors Many older adults will have disposable income to prioritise travel, health, nutrition, and personal fitness. Businesses that cater to this demographic can potentially see increased sales volumes and profitable returns.
Where to Find Investment Opportunities? Could Healthcare be the answer?
While there are negative implications for global economies and markets as the world’s population ages, new investment opportunities are being created that focus on serving the ageing population.
Personalized Medicine. One of the fastest growing areas, this approach tailors treatment based on a patient’s specific genetic makeup, enabling physicians to make more informed and effective decisions for patient care. It’s effective in the prevention, diagnosis, and treatment of disease. Genetic testing enables doctors to screen for specific diseases based on family history and assist in the early detection of hereditary forms of breast, ovarian, and prostate cancer.
Generative AI. Artificial Intelligence – especially Generative AI – is already having an impact on healthcare, analyzing medical images such as X-rays and MRIs with high efficiency, interpreting results, and offering personalized recommendations. Generative AI is also making a mark on robotic surgery, predictive analytics, and accelerating the time and cost to bring new drugs to market.
Preventative Healthcare. Research shows that a switch from reactive to proactive approaches to maintaining good health (such as exercise and immunizations) creates long-term benefits for patients, including reducing the costs of treating preventable conditions.
Elderly Care. As global populations continue to grow older and people live longer, there will be increased pressure placed on the healthcare systems required to take care of this ageing population. There will be a demand to provide solutions that will enable the elderly to remain in their homes longer, as opposed to living in hospitals or nursing homes. This growing demographic shift also creates a substantial demand for new senior living facilities, both in creating affordable housing solutions as well as luxury living for affluent seniors.
Virtual and Augmented Reality. These technologies have the potential to change how new types of treatment and diagnostics are delivered in highly immersive and realistic ways. For example, an AR system can help guide a surgeon by overlaying medical images to help guide the procedure.
By Xtrackers by DWS
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This communication is provided for general information only and should not be construed as advice. If in doubt you may wish to consult a professional adviser for guidance.
Tax treatment depends on personal circumstances and is subject to change, and past performance is not a reliable indicator of future returns.
Sources
World Population Prospects 2024, United Nations as of July 2024
World Population Prospects 2024, United Nations as of July 2024
DWS, CIO Special, September 24, 2024
Federal Reserve Board, “Distribution of Household Wealth in the U.S. Since 1989 – Corporate Equities and Mutual Fund Shares by Age,” 2024
Survey Conducted by Coalition Greenwich, May 2022
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