How the West's ageing population is already altering stock market returns

Wednesday, Sep 05 2012 by
4
How the Wests ageing population is already altering stock market returns

Of all the mega-trends that are routinely discussed by the financial media such as emerging markets or the commodity supercycle, the one concerning ageing populations gets relatively less attention.

This is surprising, because as one demographics expert argues, it is probably the most powerful trend of all – especially in the context of market valuations.  

For instance, it means the days of getting an expected annual average 7% return from the stock market just by holding an equity index over the very long-term are probably gone for good and the commodity supercycle, in terms of oil at least, is likely to have run its course. On the other hand this 'new normal' of uncertainty and volatility should be supportive of gilts as investors seek the sanctuary of relative safe havens, even at the expense of very low returns.

“Demographics drive demand,” says Paul Hodges, chairman of UK-based strategic consultancy, IeC. “Western baby boomers have created the largest and wealthiest generation that has ever lived. But since 2001 they have been entering the age 55+ cohort.” He says this highly significant demographic shift is bringing about fundamental changes in terms of stock market performance and the economic environment. Economic growth tends to drive corporate earnings and it's those numbers and future expectations of them, which influence long-term valuations. As the world transitions towards this new normal it is likely to lead to lower equity valuations, says Hodges who has advised a number of major companiesand investment banks on demographic trends.

Hodges argues that deleveraging, austerity and the woes of the financial sector are simply the symptoms of the real issue facing us. For him, their cause is the result of the ageing of the Western population

Seeking new explanations

As economists and policy makers struggle to find explanations for continued sub-normal GDP growth there are some who are beginning to examine the demographic argument as a possible cause. After all, over three years of ultra-low interest rates and quantitative easing have not brought about sustained economic recovery.

In June financial services group Standard Life published a report looking at the demographic perspective and argued that differences across age groups can have substantial influences on asset prices and inflation levels. It added that the size and differences across various age cohorts leads to divergences in the supply and demand for financial…

Unlock this article instantly by logging into your account

Don’t have an account? Register for free and we’ll get out your way

Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


Do you like this Post?
Yes
No
4 thumbs up
0 thumbs down
Share this post with friends



Unilever PLC is a fast-moving consumer goods (FMCG) company. The Company's segments include Personal Care, which primarily includes sales of skin care and hair care products, deodorants and oral care products; Foods, which primarily includes sales of soups, bouillons, sauces, snacks, mayonnaise, salad dressings, margarines and spreads; Home Care, which primarily includes sales of home care products, such as powders, liquids and capsules, soap bars and a range of cleaning products, and Refreshment, which primarily includes sales of ice cream and tea-based beverages. The Company's geographical segments include Asia/AMET/RUB, The Americas and Europe. Its brands include Axe, Dirt is Good (Omo), Dove, Family Goodness (Rama), Heartbrand (Wall's), Hellmann's, Knorr, Lipton, Lux, Magnum, Rexona, Sunsilk and Surf. The Company operates in more than 100 countries, selling its products in more than 190 countries. The Company operates approximately 310 factories in over 70 countries. more »

LSE Price
4190p
Change
-0.1%
Mkt Cap (£m)
119,370
P/E (fwd)
21.4
Yield (fwd)
3.0

GlaxoSmithKline plc is a global healthcare company. The Company operates through three segments: Pharmaceuticals, Vaccines and Consumer Healthcare. The Company focuses on its research across six areas: Respiratory diseases, human immunodeficiency virus (HIV)/infectious diseases, Vaccines, Immuno-inflammation, Oncology and Rare diseases. The Company makes a range of prescription medicines, vaccines and consumer healthcare products. The Pharmaceuticals business discovers, develops and commercializes medicines to treat a range of acute and chronic diseases. The Vaccines business provides vaccines for people of all ages from babies and adolescents to adults and older people. The Consumer Healthcare business develops and markets products in Wellness, Oral health, Nutrition and Skin health categories. Its product portfolio includes Adartrel, Bexsero, Daraprim and Quinvaxem. Its brands include Panadol, abreva, polident and physiogel. more »

LSE Price
1629.5p
Change
-0.8%
Mkt Cap (£m)
80,744
P/E (fwd)
14.6
Yield (fwd)
4.9

Tesco PLC (Tesco) is a retail company. The Company is engaged in the business of Retailing and associated activities (Retail) and Retail banking and insurance services. The Company's segments include UK & ROI, which includes the United Kingdom and Republic of Ireland; International, which includes Czech Republic, Hungary, Poland, Slovakia, Malaysia and Thailand, and Tesco Bank, which includes retail banking and insurance services through Tesco Bank in the United Kingdom. The Company's businesses include Tesco UK, Tesco in India, Tesco Malaysia, Tesco Lotus, Tesco Czech Republic, Tesco Hungary, Tesco Ireland, Tesco Poland, Tesco Slovakia, Tesco in China, Tesco Bank and dunnhumby. The Company's brands include Finest, Everyday Value, Chokablok and Technika. Finest and Everyday Value are the two food brands in the United Kingdom. The Company offers a range of personal banking products, principally mortgages, credit cards, personal loans and savings. more »

LSE Price
182.6p
Change
-1.1%
Mkt Cap (£m)
15,096
P/E (fwd)
17.6
Yield (fwd)
2.1



  Is Unilever fundamentally strong or weak? Find out More »


What's your view on this article? Log In to Comment Now

You can track all @StockoChat comments via Twitter


About Justin Pugsley

Justin Pugsley

I’m an investment writer / copywriter producing thought leadership and marketing material and insights for asset management, wealth management and professional services firms. I manage my own investment portfolio and primarily focus on investing in dividend growth shares. I also do some momentum investing and occasionally pursue short-term investment strategies at the margins of my portfolio. I’m fascinated by geo-politics, history, economics and investing.   Linkedin:https://uk.linkedin.com/in/justinpugsleyWebsite:www.jjpassociates.co.uk more »

Follow



Stock Picking Tutorial Centre



Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis