Populations in developed markets around the world are aging. With that comes certain opportunities for investors, according to BlackRock. The same is true for those markets that have a growing population, leading to what the firm calls demographic divergence. It’s one of five so-called mega-forces affecting investing that the BlackRock Investment Institute tracks. While the trends may seem predictable, they develop slowly and are ones that investors have yet to latch on to, said Wei Li, chief investment strategist at BlackRock Investment Institute. “While everyone may think they have the demographic trends figured out, markets don’t move until the trends are evident in the economy,” she said. “There are some really exciting opportunities here.” Not only are people living longer, but there are fewer births than in previous generations. Global life expectancy was 73.4 years in 2019, up from 66.8 years in 2000, according to the World Health Organization. Meanwhile, birth rates have fallen from an average of 5 births per woman globally in 1950 to 2.3 births per woman in 2021, according to the United Nations. Of course, there will be an impact on these economies as the number of people of working age – between the ages of 15 and 64 – declines, BlackRock said in a recent report. The firm analyzes data from the United Nations and Haver Analytics. The working-age population is expected to continue to decline over the next 20 years. However, there are variables that can affect how much aging affects economic growth, such as the number of migrants, women and those over 60 entering the labor force, Li explained. With this in mind, BlackRock looked at which sectors and countries could benefit from demographic differences. The key is to be selective and think long-term, Li noted. Aging population plays a role In developed markets with aging populations, healthcare needs will increase, creating an investment opportunity in the sector, Li said. Again, while predictable, it’s still underrated, she pointed out. “The relative superiority of the healthcare sector is to be expected in the context of an aging population,” Li said. “But the outperformance is realized slowly as economies age, rather than an instant reassessment of a very predictable trend.” In Japan, for example, the growth of its retired population is well-documented years into the future. However, the value of its health-care stocks — relative to the broader market — has risen in step with the growth of the retirement population, the report said. The company sees benefits for the entire sector. “It’s not just biotech and drug discovery and innovation, but even just maintenance,” Li said. One way investors can tap into the sector is through healthcare exchange-traded funds. The largest is the Healthcare Select Sector SPDR Fund ( XLV ), which has a total return of 5.43% this year. It tracks the healthcare sector of the S&P 500. Investors can gain global exposure through funds such as the iShares Global Healthcare ETF (IXJ). Artificial intelligence also plays a big role. As countries seek to increase productivity amid a shrinking workforce, they will turn to new technologies, Li said. What it comes down to is how much artificial intelligence can come to the rescue, she said. Already in the U.S., the market is hoping and somewhat expecting an economy-wide productivity boost from AI, she said. “A sustained economy-wide productivity boom is very difficult to achieve, especially in the context of supply constraints coming from, among other things, demographic shortages, an aging population,” Li said. “This is where AI comes in.” Opportunities for population growth Then there are countries expected to grow their populations, such as Indonesia, Mexico, Saudi Arabia, South Africa and India. India stands out because of its size and the fact that its working-age population is expected to increase by 120 million over the next 20 years, Li said, citing World Bank data. By comparison, China is aging and is expected to see a decline of more than 140 million people over the same period, she said. “These are meaningful, meaningful numbers,” she said. “Because the markets can only focus on one thing at a time, they can’t fully grasp the scale right now.” India is also seeing an increase in the female workforce, but there is still a lot of room for improvement. “If India manages to attract more people to the workforce, especially women, it will significantly boost its growth trajectory,” she said. With that comes more investment in productive capital, such as machinery, transportation infrastructure, housing, schools and hospitals, Li pointed out. People will move from rural to urban areas. The energy sector would gain as demand increased, she said. US investors can usually gain access to foreign companies through mutual funds, or ETFs, as well as American Depositary Receipts (ADRs). Some may also have US-listed shares. Here are some ETFs that are focused on India.
