Written by Mark Thomas
8 January, 2020
What are Megatrends?
Megatrends are longer term structural shifts that have irreversible consequences. The awareness of megatrends when investing offers a compass for investors to follow as they ultimately influence investment markets.
We look at three megatrends that are likely to impact in 2020 and beyond, and what investment themes and strategies will benefit:
1. Ageing to hit 21 percent of global population
2. Impact of China’s middle class surpassing a combined Europe & US middle class
3. Sustainable living by employing ESG investing
We also cover the outlook for the Australian economy in 2020 and touch on investment themes for 2020.
1. Ageing population to hit 21% of global population by 2050
The global population aged 60 years or over tallied 962 million in 2017, more than twice as large as in 1980 when there were 382 million older persons worldwide. The number of older persons is expected to double again by 2050, representing approximately 2.1 billion people.
As the average age of populations continues to rise, Governments should implement policies to address the needs and interests of older persons, including housing, employment, health care and social protection. By anticipating this shift, countries can proactively create policies so that “no one will be left behind”, according to the United Nations.
- Greater spend on healthcare and pharmaceuticals
- Look for companies that address age related diseases
- Focus on solutions that offer attractive aged care
- Look at products and services that cater to the over 60s marketplace, for example 50 percent of household spending in Japan is now from over 60s
- Downsizing, reverse mortgages and other strategies that release capital for lifestyle needs
2. Middle class of China and India to reach 25% of global population by 2030
Two decades of strong economic growth has lifted China’s per capita GDP from 8 percent of US per capita GDP in 2000 to roughly 30 percent this year.
According to the OECD, China’s middle class will grow by approximately 45 percent and add 370 million people for a total of almost 1.2 billion by 2030. This income segment of the population will represent 86.8 percent of the entire country’s spending power. India is also growing strongly and is expected to have a middle class of 1 billion people by 2030.
Chinese middle-class spending power will double over the next decade to USD 14.5 trillion and will be equivalent to the middle classes of North America and all of Western Europe combined.
China and India should be a key source of growth for consumer and lifestyle focused companies.
- Premium brands – luxury goods, electronics, clothes and cars
- Education – most of these are privately or government owned
- Leisure and entertainment – gaming and streaming
- Property – Australian property offers a safe haven to move assets offshore and facilitates permanent residency status over time which is a desirable option for many Chinese
- Online retail – e-commerce portals will continue to grow
3. Sustainable Living
I cannot recall a day this summer when climate change wasn’t being talked in the media and social media, particularly with the Australian bushfires creating such destruction and impact for thousands of Australians this year.
The climate record from EPICA core from Antarctica. It shows the normal range of climate variability over the past 650,000 years (450,000 years shown here) and the last 6 glacial-interglacial cycles. At no point in any previous interglacial was the carbon dioxide level higher than 300 ppm, or the temperatures so high, yet we are almost to 400 ppm today. This is ironclad evidence that our present episode of warming is not “normal fluctuations”, says Michael Sherman of www.eskeptic.com
According to BlackRock, “An expanding population and the rising demand for food, energy and materials continue to strain the finite resources of the planet. The need for solutions that improve energy efficiency, lower food waste and provide alternatives to scarce resources has never been greater. Underlying these trends is the persistent increase in global emissions which has led to intensifying debates around climate change and how we can resolve it.”
- Efficient and renewable energy – solar and wind cost curves have fallen and are approaching fossil fuel cost levels with solar costs falling almost 90% since 2010.
- Warren Buffet recently announced an investment in the world’s largest solar energy plant, some 690 Megawatts in Nevada.
- Recycling companies and sustainable packaging will see strong growth.
- Substitutes for scarce materials used for batteries and smart phones will also be in demand, for example lithium miners and semi-conductor firms.
- With a declining agriculture sector, the need for efficient food production has never been so great. Food technology companies will benefit in this environment as less will have to feed more.
- ESG funds – according to the Forum for Sustainable and Responsible Investment, global assets under management in ESG strategies grew to $11.6 trillion in 2018 from $178 billion in 2005. This trend is expected to continue for some time adding to demand for sustainable investing themes.
Outlook for Australian Economy
For those who are looking for an outlook for the Australian economy here is a link worth reading. While produced by a government department it is also supported by The International Monetary Fund (IMF) who remains positive on Australia’s economic outlook. In its latest assessment, the IMF forecasts that Australia’s real GDP will grow by an average rate of 2.7 percent per year from 2020 to 2024. This projected growth rate is the highest among major advanced economies.
Next week, we focus on three themes that are breaking out:
- Risk hedging assets: There are a number of unknowns at play with US/Iran tensions and Brexit. We review some options to manage this risk and how they have recently performed – gold, government bonds, and real property.
- Growth strategies: Resi property – First home buyers receiving a shot in the arm with the new Australian Commonwealth government First Home Buyers support scheme rolling out from 1 January 2020. Emerging market investments represent an opportunity with global growth expected to rise on 2020.
- Australian bushfires: What is the impact of the Australian bushfires on insurance and building companies.