Demographics is not just a simplistic, homogenous predictive tool, but is, in fact, far more complex and useful than most of us understand. It can help us to forecast future scenarios, explains Amlan Roy, a leading global macro researcher. A renowned expert in explaining how demographics affects economic growth, inflation and asset prices, he debunks common misconceptions and provides pragmatic solutions for investors.
The former managing director and head of global demographics and pensions research for Credit Suisse in London, he uses pioneering academic research to engage a broad range of real world clients and investors across 38 different countries, from mutual fund managers to macro hedge funds, government treasuries to central banks, and insurance companies to pension funds. Roy speaks at more than 70 global conferences on a vast range of demographic-related topics, from stock and bond prices to real estate and commodity prices. He is also senior research associate with the London School of Economics’ Financial Markets Group.
Many consider demographics to be just about age. What else should investors, economists and policymakers be considering?
Demographics is not age-related, not long term and not predictable. It is about people as consumers and workers and it affects the income statements and balance sheets of individuals, families, corporations and countries.
Consumption and lifestyle preferences all depend on a very complex set of factors, which include family background, gender, health, education, skills and geography. In addition, your behavior and psyche are formed based on your personal experiences. All these variables influence your consumption and how you work. So, we are not homogenous or super-clones who behave super-rationally and that needs to be understood by investors, economists and policymakers.
Demographics is not predictable. It’s not about the long term. It’s about how you and I change day-to-day. And we change day-to-day because of technology, fashions, fads and so on. All these factors affect how we behave, consume and spend. To me, demographics is about 7.4 billion people who are changing, both as consumers and workers.
Viewing demographics as being just about age is over-simplifying it. This has led to major economic blunders. For example, pension funds and insurance companies have been erroneous in thinking that all retirees are the same.
Demographics is in fact the hidden key to understanding economic growth, asset prices and capital flows and to forecasting future scenarios in economics, socio-economics, geopolitics and the environment.
If consumers are changing, which sectors will become important for investors in the future?
Investment in pharmaceuticals and biotech is very important, both in countries with ageing populations and also in developing countries. The world needs drugs for tuberculosis, malaria, multiple sclerosis, Parkinson’s, meningitis and so on. We also need better, more transparent and affordable financial services – insurance for our older generations and radically different pensions. Leisure and luxury will also be key – as the rich keep getting richer globally. Investment in both infrastructure and natural resource sectors will continue to be important, as well as investment in emerging markets and their consumers.
“Why global demographics matter for investments?”
Amlan Roy, Credit Suisse
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