Abu Dhabi, UAEMonday 27 May 2019

What increasing lifespans mean for investors

Global demographic shifts create investment opportunities for those looking to park their money in the silver economy

The growth of the silver economy: there were roughly 962 million people aged 60 and over in 2017 worldwide, more than double the number in 1980. AP 
The growth of the silver economy: there were roughly 962 million people aged 60 and over in 2017 worldwide, more than double the number in 1980. AP 

The world is on the brink of a truly remarkable demographic transformation. For the first time in human history, the number of people aged 60 and over is expected to surpass that of children under the age of 10 by 2030.

Specifically, there were roughly 962 million people aged 60 and over in 2017 worldwide, more than double the number in 1980 (382 million). This number, according to the 2017 World Population Ageing Report by the United Nations, is set to expand further to nearly 1.41 billion by 2030 and roughly 2.1 billion by 2050. By comparison, the number of those living past 80 should grow even more rapidly, from 137 million in 2017 to 425 million in 2050 - a threefold increase.

Based on estimates by OECD, the spending power of the retiring and elderly consumers is set to grow from $8tn in 2010 to $22tn by 2025 globally, driven primarily by greater disposable incomes

Damien Ng

This unprecedented increase in the number of elderly people on a global scale is primarily a result of four key factors. They include: a shift from high to low fertility; a decreased mortality rate across all age groups; better medical treatments, as well as changes in lifestyle.

Given the powerful demographic trends presently underway, long-term investors should adopt a positive stance on the prospects of the extended longevity topic. If people can enjoy longer, happier and more fulfilling lives through hobbies, leisure activities and financial planning, their lifetime economic contribution to the society will undoubtedly be greater than past generations could ever achieve.

Investing in the silver economy (also known as the economy dedicated to the elderly in our societies) requires a segmental investment approach. With the increasing frailty of old age and the shifting lifestyle preferences of the greying population, five key segments that underpin the extended longevity space need to be explored.

The healthcare segment is one of the key focus areas that is well positioned for growth. This is because the longer people live, the greater the likelihood of contracting diseases and various age-related conditions. In fact, non-communicable diseases such as Parkinson’s disease, autoimmune diseases, strokes, most heart diseases, most cancers, diabetes etc. account for nearly 86 per cent of all healthcare spending worldwide.

According to the World Health Organisation, global healthcare spending is projected to reach $10 trillion (Dh36.73tn) by 2022, driven primarily by the elderly who spend nearly 75 per cent of the total amount. Half of the global healthcare expenditure alone will be spent on the three leading causes of death: cardiovascular diseases, cancers and respiratory diseases. Moreover, the number of diabetes sufferers will also grow from 415 million to 642 million by 2040.

Elderly care is another key segment that remains a strong investment area. The European Commission estimates that total public expenditure on long-term care is likely to rise from 1.6 per cent of gross domestic product in 2015 to 2.8 per cent by 2060 across Organisation for Economic Cooperation and Development countries as the population ages. The three major services in this investment space include assisted living, senior catering services and adult diapers.

The long-term outlook for the age-related leisure segment should remain positive, since holidays are one of the leisure priorities as people live longer and healthier lives. For instance, the European Commission estimates that baby boomers - those born between 1946 and 1964 - in the US alone make up a $120 billion travel market, while the 60 plus age cohort is expected to account for 212 million or 29 per cent of tourists in Europe by 2030. The gaming sector is also popular among the elderly, given that 65 per cent of the sector’s revenues are generated from the 55-plus age group in the US.

Based on estimates by OECD, the spending power of the retiring and elderly consumers is set to grow from $8tn in 2010 to $22tn by 2025 globally, driven primarily by greater disposable incomes. For instance, anti-ageing beauty products in particular have become some of the most consumed products amongst the elderly and young individuals alike. According to L’Oréal, the global beauty products market is expected to expand from $510bn in 2015 to $716.6bn by 2025. We hold a favourable view on the consumer sector in the silver economy, especially given that it already accounts for half of all urban consumption growth in developed markets today.

Deciding to retire marks a significant milestone in an individual’s life and requires careful planning. Globally, about two out of five people are already relying on their savings to some extent to fund their retirement, which accounts for nearly 30 per cent of all retirement income. The resolve to save for retirement should solidify further as the demand and education for personal investments grow and better investment products become more readily available for the public. We particularly see growth opportunities in insurance companies, which offer savings and protection services and products to clients based in some emerging markets, especially China and India as their economies develop further.

Long-term investors should hold a positive stance on the extended longevity investment topic, given the momentous demographic trends taking shape around the world and the multiple investment opportunities that stem from them.

Damien Ng is a next generation research analyst at Swiss private bank Julius Baer

Updated: May 6, 2019 11:24 AM

SHARE

SHARE