Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: This is a podcast from HSBC Global Research, available on Apple Podcasts and Spotify.
Speaker: Search for HSBC Global Viewpoint or join us via the HSBC Global Banking and Markets page on LinkedIn.
Speaker: However you're listening, analyst notifications, disclosures and disclaimers must be viewed on the link attached to your media player.
Speaker: Welcome to our weekly podcast, Under the Banyan Tree.
Speaker: My name is Fred Newman.
Speaker: I'm the Chief Asia Economist at HSBC.
Speaker: And I'm Harold van der Linde, HSBC's Asian Equity Strategist.
Speaker: Well, here's a question for you.
Speaker: What do age, gender, and population size have to do with trading in Asian markets?
Speaker: You're about to find out.
Speaker: Today, we're talking all things demographics, right here, Under the Banyan Tree.
Speaker: So, Harold, we often look at day-to-day movements and markets, but there's one thing that really dominates over the medium and long term, and that is demographics.
Speaker: We don't really speak enough about it.
Speaker: No, absolutely.
Speaker: And this is the most populous part of the world.
Speaker: Demographics determine many things in the longer run, how people consume, what they buy, where they buy it, how they save, and all these sort of things.
Speaker: And there was one big UN report that recently came out and had some interesting statistics and reinforced some of the big, big picture trends.
Speaker: What did the report show?
Speaker: Yeah, no, so that UN report came out a couple of weeks ago.
Speaker: A few things we should probably zoom in on and focus on.
Speaker: First of all, India will become the most populous nation in the region or in the world.
Speaker: So it's going to overtake China in that sense, in the number of people.
Speaker: And the population in India will continue to grow.
Speaker: while in China it will actually start to come down.
Speaker: Another trend that they're looking at is aging.
Speaker: And we have quite different profiles of aging and aging stories across the region, right Fred?
Speaker: Yes, we have rapidly aging populations.
Speaker: Famously, Japan is an aging society.
Speaker: But there are others as well.
Speaker: They're catching up in terms of the aging.
Speaker: Korea is one of them.
Speaker: Even Thailand is looking.
Speaker: Vietnam, I believe, as well.
Speaker: Vietnam is there.
Speaker: Taiwan is there as well.
Speaker: But there are some nations and countries that are...
Speaker: really young still, the Philippines, India, Indonesia is somewhat young, I would say, but it's moving towards aging as well.
Speaker: And how does China fit into all of this?
Speaker: Well, China, of course, is hugely important to this, but I have a question more for you.
Speaker: If the population in China is going to decline and you have fewer people to work there, that can't be good for economic growth in the longer run.
Speaker: Yeah, so the classic answer is always fewer people, less economic output.
Speaker: And so if you actually have shrinking populations, fewer workers around, it's hard to generate GDP growth.
Speaker: And we've seen it in Japan, where really for the last two, three decades, the economy struggled to make headway.
Speaker: But of course, it's not the only factor.
Speaker: Demographics, there are some compensating factors as well.
Speaker: Yeah, I mean, one of the compensating factors is, of course, that they will focus on the productivity of those people that are employed.
Speaker: For that, you need good education systems, training, experience, and these sort of things.
Speaker: And I think China has done quite a good job on that relationship.
Speaker: Yeah, and here there's an interesting comparison between Japan on the one hand and mainland China on the other, which is that in Japan, the productivity is already very high.
Speaker: And so raising it further is actually quite tricky.
Speaker: And that's why Japan has a growth problem.
Speaker: Whereas in mainland China, you could argue that actually productivity on the whole is still fairly low.
Speaker: So they could catch up on productivity and compensate for the decline in the population.
Speaker: So at least here,
Speaker: The challenges for mainland China are not quite as stark as they may be for an advanced economy like Japan, for example.
Speaker: But clearly, it's not just about driving up productivity.
Speaker: No, I think one thing that we also should look at is that aging comes with wealth effects.
Speaker: Older people are simply wealthier than younger people.
Speaker: We both probably have more money than we had when we were students and backpacking around the region.
Speaker: So if your age, if your society ages, you have wealth accumulation across the region.
Speaker: And I believe that's what we've seen, right?
Speaker: Saving rates have been high in Asia.
Speaker: Yeah, so when we are approaching retirement, of course, we know that individually we tend to save more.
Speaker: And you tend to therefore see saving rates among households go up as the bulk of the population is moving towards retirement.
Speaker: So you see very high saving rates in places, for example, in places like Korea, where now people are saving for the nest egg.
Speaker: But China, financially,
Speaker: fits that category as well, where actually we see gradually people become much more conservative in their spending behavior because they are worried about retirement.
Speaker: And so that's driving up the bill up in assets.
Speaker: Absolutely.
Speaker: So, and they also know that their time in retirement is going to be much longer than their fathers or grandfathers.
Speaker: So people spend a
Speaker: prolonged period in retirement, they therefore need more money for that as well.
Speaker: You see a buildup of assets and of course that's good news if you're an insurer or you sell a saving products or you're a bank.
Speaker: What we also see is that people work longer in North Asia and I believe that's got an impact on wages amongst others, correct?
Speaker: That's right.
Speaker: So we see actually retirement ages going up or people officially retire but still join the labor force because, of course, they're still healthy and they're contributing still to society in terms of having side jobs, for example.
Speaker: So we have in many ways made the demographic issue more elastic by, for example, stretching out the retirement.
Speaker: And also on the female side, of course, more female workers coming into the workforce as well.
Speaker: Yeah, and in Japan, that has had an impact on wages as well.
Speaker: Now, I'd like to now maybe link this a little bit to inflation, Fred, because we've seen some of these trends unfold in the developed nations over the course of the last couple of decades.
Speaker: Interest rates have come down, inflation has come down, demographics seem to be a reason for that in that part of the world.
Speaker: Is that something that we might expect to see in Asia as well?
Speaker: Well, generally, we see interest rates come down in populations and economies where you have aging populations.
Speaker: And that's partly because growth is slowing because few workers are around, but also because demand is declining.
Speaker: And then further, because of the buildup in savings.
Speaker: So all of that contributes more savings, less demand.
Speaker: Less investment.
Speaker: Less investment and therefore lower interest rates.
Speaker: But it could be potentially a turning point and that is because of fewer workers around in these economies as well.
Speaker: So the question in economics is, is there a tipping point where aging populations ultimately drives up wages and that could then be inflationary?
Speaker: Think of the big picture.
Speaker: If China has fewer workers for the world economy, that means less factory workers.
Speaker: And this is actually very important for me as an equity strategist, because stock markets are being priced off those interest rates and those inflation trends.
Speaker: So if we would see, for example, that interest rates would come down, that means that you get a re-rating in markets.
Speaker: And is that something we saw in Japan and Korea, for example, where there are aging populations?
Speaker: Is it good for the equity market?
Speaker: To a certain extent.
Speaker: We've definitely seen that in the West, I would say.
Speaker: Bond yields have declined.
Speaker: Interest rates have come down over the course of the last three decades.
Speaker: And that has lifted equity valuations in that part of the world.
Speaker: And I would not be surprised if that's going to happen in this part of the world as well.
Speaker: So plenty macro trends here to talk about, but we should probably take a quick break and then delve into some of the nuances when it comes to demographics and markets.
Speaker: Sounds like a good idea.
Speaker: Hi everyone, producer Graham here, and just before we move on with this edition of Under the Banyan Tree, we want to take this opportunity to invite you to join HSBC's Global Emerging Markets Forum, which will take place online from the 13th to the 30th of September.
Speaker: Over three weeks, policymakers, thought leaders, corporates, and our team of experts here at Global Research will be sharing their views on the outlook for emerging markets.
Speaker: If you're interested in attending, please contact your local HSBC representative for more details.
Speaker: Now, back to you, Harold and Fred.
Speaker: Welcome back.
Speaker: Harold, there's a lot to unpack here when it comes to demographics, a lot of nuances.
Speaker: I'm reminded a little bit about the point you made in a previous episode, which is the rise of the retail investor in Asia driving equity markets.
Speaker: How is that linked to demographics?
Speaker: Well, we've already mentioned that part of a demographic process could mean that you get wealth accumulation, and we see this probably in Asia unfolding.
Speaker: And in stock markets, this is really visible because we see enormous numbers of retail investors that have actually started to dominate trading in these stock markets.
Speaker: And that was not the case 10 or 20 years ago.
Speaker: In Korea, India, Indonesia, Indonesia a little bit less.
Speaker: But in most of these markets, the retail investor now accounts for about 50% of the overall turnover in that market.
Speaker: That is a lot.
Speaker: So it impacts the dynamics of these stock markets.
Speaker: But I would suggest that probably also impacts capital flows across the region, Fred.
Speaker: It does impact capital flows as well.
Speaker: So what you see in societies that are aging, you see a buildup in pension assets because people are saving more for retirement.
Speaker: They build up pensions for the future.
Speaker: And so that money needs to be invested.
Speaker: And very often the local markets aren't big enough to invest all of that money.
Speaker: So money is flowing out of Korea, for example, out of Taiwan.
Speaker: And that means enormous capital outflows actually being invested elsewhere in the world.
Speaker: And of course, Japan has for many years been a source of capital.
Speaker: But that drives currencies, for example.
Speaker: That drives a lot of broader macroeconomic variables.
Speaker: is linked to this buildup in assets.
Speaker: But how should we think about it in China as well when it comes to the retail investor?
Speaker: The retail investor in China has always been very big.
Speaker: Actually, the process in China is almost the opposite of what we see in the rest of the region.
Speaker: While there, the foreign investor becomes less important and the domestic investor becomes more important because China has always been a closed market.
Speaker: It's a bit the opposite.
Speaker: The domestic institutional or retail investors always been really big.
Speaker: And only recently have we seen that foreign investors have come in there.
Speaker: So that's a bit smaller.
Speaker: But that is one aspect of demographics.
Speaker: I think another issue we should be looking at is differences in urbanization across the region.
Speaker: That's been quite slow in India, much faster in China, correct?
Speaker: Yeah, and urbanization is a key economic engine, right?
Speaker: You have to build cities, you bring people together, they sit in
Speaker: factories and offices and generate productivity.
Speaker: So urbanization is really the story of the rocketing development in mainland China in recent decades.
Speaker: And because bringing people together has this economic potential, so you build infrastructure, for example, but also productivity gains.
Speaker: Yeah, but urbanization in India has been much slower.
Speaker: So that would suggest that for India, there's still a lot of catch up in terms of growth to come for them.
Speaker: But why would it have been slower in India?
Speaker: Have you thought about that?
Speaker: Yeah, so India is still under urbanized compared to mainland China.
Speaker: But of course, India is starting a few decades back relative to mainland China when it comes to this process.
Speaker: I would argue one aspect is probably the lack of infrastructure.
Speaker: Mainland China was very good at building infrastructure very quickly and accommodating that urbanization.
Speaker: And that process perhaps a bit slower in India, though it is catching up, but it might not be the only factor necessarily.
Speaker: This is quite an important point, actually, because, for example, for us in the stock market, it means that most of your consumers and the companies that you invest in in China will be in the larger cities.
Speaker: So distribution is not as important, but being able to get the products there is key.
Speaker: But in India, you need to distribute all your products to really lots and lots of companies.
Speaker: smaller villages and townships across that nation, it is of course much more difficult.
Speaker: So there you want to invest in the companies that have that capability to do so.
Speaker: Now, one of the other kind of trends or nuances when it comes to demographics is female participation in labor force.
Speaker: And that's a huge swing factor.
Speaker: Have you looked at that?
Speaker: Where does this matter?
Speaker: Yeah, actually, China and India here are very nice, almost polar here, because in China, female labor participation rates have always been really high.
Speaker: And in India, they are really, really low.
Speaker: Now, this has got massive implications for household spending, because if you have a family of, say, parents of two children, if the female works and contributes to household income, your ability to go for premium products and luxury is much bigger than it is if the female is not at work.
Speaker: And in China, we see premiumization trends, people moving up the ladder and buying higher luxury products.
Speaker: And in India, that's much more difficult.
Speaker: And one interesting example here is actually Japan, which has a demographic challenge, as we highlighted.
Speaker: Population is aging very rapidly.
Speaker: But under Abe-nomics, the late Prime Minister Abe, he did focus quite a bit on trying to raise female participation in the workforce.
Speaker: But that is, I think, a very important trend.
Speaker: But he spurred this along with trying to focus on child care, trying to focus on
Speaker: equality of opportunity for education and these policies matter enormously.
Speaker: Absolutely, that's really important that you have the right policies in place but if I look at my own family in Indonesia another thing that is rather important is that we've seen birth rates have come down over the generations.
Speaker: My sister-in-law, for example, has fewer children than her mother and her grandmother have.
Speaker: And therefore, she works in the bank, actually, but her mother and grandmother didn't.
Speaker: So maybe there's a link with birth rates as well across the region.
Speaker: So clearly, many important micro policies that can be applied by governments in this regard of raising, I think, the opportunity for female participation is enormously important here.
Speaker: But there's much more to talk about, even at a more micro level.
Speaker: And for that, I think we should take a quick break and then return to those issues.
Speaker: So far we've looked at demographic trends, female labour participation rates, urbanisation, ageing.
Speaker: Many of these trends come together in a particular kind of demographic phenomena, I would say, in China.
Speaker: And that is the rise of Chinese empty nesters.
Speaker: China is ageing.
Speaker: A lot of people are close to their 40s now, so that means a large part of the population is 40, 50, going towards 60.
Speaker: That is an age whereby you see your children leave,
Speaker: They have only one child, so they become empty nesters.
Speaker: And these people have, as we discussed earlier, accumulated wealth over time.
Speaker: And they are becoming a really big part of the overall consumption story in China.
Speaker: But how many people are we talking about here?
Speaker: I mean, China is a big population.
Speaker: Have you had any estimates of how many empty nesters really are emerging in China?
Speaker: Yeah, we've crunched some numbers here and these empty nesters are really important.
Speaker: They account for over 50, just over 50% of total urban consumption in China.
Speaker: The number of empty nesters, just quickly technical, people between 40 to 64 that earn more than $50,000 is now a third of what it is in the US.
Speaker: By the end of this decade, 2030, it will be about equal to what it is in the US.
Speaker: So it's a really fast growing consumer market.
Speaker: And how would the empty nesters then impact consumer spending patterns?
Speaker: Is it that they go to more expensive brands or is it more holidays or what's the implication here?
Speaker: Because now suddenly you have a wealthy household that only has two people in it and they don't really, we assume we don't have to take care of their children anymore.
Speaker: They found their own job and build their own family.
Speaker: Yeah, they have more money to burn.
Speaker: So what do they do?
Speaker: They buy experiences.
Speaker: They go travel.
Speaker: They go to better restaurants.
Speaker: They want to premiumize, as we call that.
Speaker: They want to buy better quality products at a higher price because they can spend on it.
Speaker: And I presume healthcare would be something in their mind as well, Fred.
Speaker: It is, and that's, I think, a very big part of the story here.
Speaker: If you have aging populations, you need to have a bigger healthcare sector.
Speaker: There's a bigger demand for healthcare services.
Speaker: And so we've seen some economies, and mainland China, I think, stands out, where the government's really trying to prioritize the improvement, expansion of the healthcare sector because in anticipation of essentially the population aging.
Speaker: But of course, that's also a stock market trend.
Speaker: Presumably, that sector becomes more prominent
Speaker: Absolutely.
Speaker: So that is a growing market and actually not just in China, because you see that healthcare spending goes up very rapidly as people move beyond 40 years old.
Speaker: So it is the populations that approach that age where healthcare spending, it goes up exponentially sometimes.
Speaker: And that is the part in, for example, in ASEAN, parts of ASEAN, that is absolutely the case.
Speaker: So, Harold, plenty to talk about.
Speaker: We could talk for hours about demographics, but I think we touched at least on some of the highlights here.
Speaker: Maybe in a future episode, we should revisit this issue.
Speaker: It's a slow-moving topic, but certainly important enough to warrant another episode.
Speaker: Absolutely.
Speaker: I think we need to maybe dive deeper into certain issues.
Speaker: But I think the key message is very often that people think about demographics as something that is given and that it is a problem, but it's how you prepare yourself for it.
Speaker: What policies you put in place.
Speaker: Ignore demographics at your own peril.
Speaker: Exactly.
Speaker: Well, as we traditionally like to do under the banyan tree, we also talk a bit about other things that are on our mind.
Speaker: And I think we should maybe stick a little bit with the long term trends theme.
Speaker: Anything that you've read or comes to mind, Fred?
Speaker: Well, there's certainly one long-term theme that's financial crises.
Speaker: And there's this fantastic classic, which is Mania's Panics and Crashes by Charles Kindleberger.
Speaker: And he goes through the history of financial crises and panics.
Speaker: And he relates this beautiful episode about the tulip crisis.
Speaker: crisis, a bubble first and then a crisis in the Netherlands.
Speaker: But of course, there were many that followed after that.
Speaker: And I think anybody who was in financial markets and watches markets as close as we do will find some parallels to history there.
Speaker: But Harold, what's a long term theme that you keep going back to?
Speaker: Well, I read a book and I continue to go back to it to a certain extent.
Speaker: And it probably beats your book when it comes to real long-term trends because this book, it's titled Guns, Germs and Steel, is written by a zoologist who encountered people in
Speaker: Erie and Jaya, Papua New Guinea, I think in the 70s or so, and wondered why he, as an American, why his country was so much more developed than these people that he met.
Speaker: And he went all the way back to the beginning of mankind and found that there were certain reasons, guns, germs and steel, steel being an industry and these sort of things, that really has led to a divergence between different continents and countries and nations across the planet.
Speaker: Really fascinating read.
Speaker: Well, that's certainly a book that takes a long view on things.
Speaker: I'll certainly revisit that one myself.
Speaker: But for now, we'll have to wrap it up.
Speaker: Thank you, everybody, for listening in.
Speaker: And Harold, see you again next week.
Speaker: Talk to you next week, Fred.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
