Bringing you live news and features since 2006 

Russ Koesterich, iShares Global Chief Investment Strategist

Ageing society to impact on markets, says iShares Koestrich

RELATED TOPICS​

The greying of the developed world is forecast to accelerate, according to Russ Koesterich, iShares Global Chief Investment Strategist, in his latest Market Perspectives report.

“But whilst the societal implications are unclear, there is almost certain to be a subtle but persistent influence on a country’s economic well-being, which will impact everything from economic growth to equity multiples.
 
“Most developed countries will see slower growth in the workforce as more people retire. All else being equal, slower growth in the working age population should translate into modestly slower economic growth.” According to Koestrich, from an investment standpoint, there are at least three major implications:
 
1. Lower valuations: slower growth countries are likely to trade at lower valuations versus faster growing economies, suggesting that the historical premium developed markets have enjoyed over emerging markets will reduce over time.

2. Lower multiples: over the long term, corporate profits are driven by real economic growth. In turn, equity multiples in developed countries are likely to remain low and may not revert back to their long-term average. Further gains will need to be predicated on earnings growth rather than higher multiples.

3. Lower real interest rates: Historically, slower growth and lower demand for capital have been associated with lower real interest rates. The eventual rise in real rates may be less than many expect.
 
“The trend towards an older population has been in place for decades but the pace is set to increase,” says Koestrich. On a national basis:
 
• The US: the trend will be somewhat gentler in the US due to a relatively high birth-rate and immigration, but the economic impact of an ageing population is still likely to be severe given the precarious state of US entitlement programmes. The US is uniquely unprepared, due to the persistent failure to tackle unfunded liabilities.

• Australia: Australian demographics are likely to be worse than the US, but the country is arguably much better prepared for those changes due to its superannuation retirement system, which has minimized unfunded liabilities. After a decade of compulsory contributions, Australian workers have more than USD1.2tn, more money invested in managed funds per capita than any other economy.

• Emerging markets are likely to enjoy the most favourable demographics. Investors looking to mitigate the impact of ageing populations should consider raising their allocations to younger markets such as India, Brazil, Indonesia, Mexico and the Philippines, and to companies that generate a growing percentage of their sales from these regions.

• China: The notable exception amongst emerging markets is China. While China’s demographics look favourable compared with Japan, Europe and the US, it is set to age much faster than several of its emerging market competitors, due to several factors including the country’s notorious one-child policy.

• Japan: Japan stands out as a demographic nightmare. A combination of low fertility rates, no immigration and rising longevity makes Japan an outlier. If there were not enough reasons already, investors should probably avoid long-term positions in Japanese stocks.

 

Latest News

Saving and investing app, Moneybox, has doubled the number of ETFs available on the platform, in the light of ‘growing..
Global X ETFs has announced the appointment of Ryan O'Connor as its Chief Executive Officer effective as of April 8, 2024. ..
Value-driven structured credit investing firm, Angel Oak Capital Advisors, LLC, has announced the completed conversions of two of its mutual..
Confidence in the continuing strength of bitcoin and Ethereum is driving wider interest in altcoins and other digital assets, according..

Related Articles

Sal Esposito, Zacks Investment Management
Zacks Investment Management started doing investment research in 1978 and in 1992 started its investment management arm, initially with SMAs...
Jeremy Senderowicz, Vedder Price
Jeremy Senderowicz, a member of the Investment Services Group at law firm Vedder Price, has witnessed a steady upswing in...
Graham MacKenzie, Toronto Stock Exchange
The evolution of ETFs has been a multi-decade experience for Toronto Stock Exchange says Graham MacKenzie, managing director, Exchange Traded...
Frank Koudelka, State Street Global Services
ETF data provider and ETF Express data partner, Trackinsight, has published its Global ETF Survey 2024 Report: ‘50+ Charts on...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by