Macro factors of demographics determine investment outcome
It’scommon knowledge that the consumption pattern changes as we grow older. We’ve witnessed this through the preferences, investing patterns and behavior of the US Boomer and Japanese populations.When aggregated, these changes can have profound impact on the country (growth rate, GDP, etc.). In a vibrant country where the replacement rates (populations replace deaths with births) or in a country with a growing population - the changes are hardly felt. But as the fertility rates crash, across the world, the impending demographic decline could lead to adverse situations for certain sectors.
This was comprehensively explored through a paper published, couple of months back, by IMF (International Monetary Fund) titled: Demographics and Consumption in Asia Toward 2050. This forward-looking research throws some interesting insights while highlighting the changes that are already underway. It sees patterns that could possibly turn true into the future if the situation continues.
The paper examines the implications of demographic changes on total consumption and its sectoral composition across seven Asian economies toward 2050, filling a gap in research that typically studies total consumption and individual categories separately.The key findings include compositional effects of demographics on total consumption can be large when middle-aged cohorts change rapidly, as they tend to be the largest consumers. In extreme cases like Singapore, the signs of consumption and population growth can become opposite if middle-aged cohorts that consume most, decline drastically.
The paper identifies clear winners and losers among consumption categories. Growing Sectors (Old-Dependent):Health and Furnishing consumption categories will grow faster due to aging populations. Declining Sectors (Young-Dependent):Education and Transport consumption will grow slower as these are young-dependent. Also,Restaurants & Hotels, exhibit the largest declines as they are most heavily dependent on middle-aged households. Specific to India, the total population is projected to grow by more than 15 percent between 2024 and 2050, but exhibits a pattern of aging with younger cohorts smaller than those now in their 20s
The paper finds that aging is common across Asian economies while could be tiered with most urgency in the shifts due to extreme aging like Japan, Korea, Singapore and China while the other with delayed impact due to moderate aging in economies like India, Philippines as they still have a runway of a decade or more to reach urgency. Then there’s another category altogether based on the migration factor. This wild card segment deals with geographies where migration is dominant, consumption here decreases proportionately across the segments. Countries like Malaysia, Philippines and Thailand as outward while Singapore and Hong Kong as inward migration.
China’s zero-age population i.e., number of babies born in a year halved between 2017 and 2024. This represents one of the most dramatic fertility collapses in modern history. Singapore presents an extreme compression when the population below age 10 is close to one third of that at ages 25-29. This is the most severe age distribution imbalance amongst the seven economies studied. In Korea, the youngest cohort is roughly one quarter of the most populous cohort. Korea also has one of the lowest total fertility rates in Asia as of 2025. In Japan, the youngest cohort is well under half size of the middle-aged cohort.
Education (and related services) turn out to be the biggest losers in the low-fertility scenario, where in Korea the consumption in this category declines by 40 per cent. This is the most dramatic sectoral decline observed. Food & Beverage industry, however, remains age resistance in Korea as its consumption decreases less than the population. Consumption in housing in India and Singapore tends to increase with age, so its consumption tends to grow faster than the population.
These statistics derive specific consumption patterns. Structural winners like healthcare, across the categories, with a skew to aging economies. Housing/Senior Real Estate is another where aging-in-place trend. Financial Services is another winner where both the accumulators (mid-aged cohorts) and distributors (retired) require. Where the demographics are weaker, sectors like education (negative 40 per cent, an extreme in Korea), traditional transport are a drag. They could be lumped as structural losers and could be underweight in the portfolios. The biggest hedging could come from Technology disruption, which now seems a high probability with the advancement of AI (Artificial Intelligence).
Why this matters in investing? Demographics are destiny. The babies born (or lack of) in 2026 determine the consumption trends in 2046 and no Asian economy is immune. Position portfolios NOW for consumption shifts that are mathematically certain. Healthcare, Senior living and financial services could be structural longs. Education and transport could be structural shorts with Technology as neutral. This is a long-term thesis for 10-25 years. However, economic development and migration patterns could significantly alter these trajectories, making adaptive planning essential.
(The author is a partner with “Wealocity Analytics”, a SEBI registered Research Analyst firm and could be reached at [email protected])
