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Prudential Research & Perspectives Our original research and thought leadership provide vital insights into important issues for our clients, financial professionals, policymakers, and the general public.

A Silver Lining: The Investment Implications of an Aging World

In a move that became front-page news around the world, China announced in late 2015 that it was abandoning its one-child policy. By lifting the restriction 35 years after its introduction, officials were tacitly acknowledging that the one-child law may have taken China down a demographic path that could now threaten its economic growth: a quickly graying population, combined with a dearth of working-age adults. And since most young Chinese adults have no siblings, the so-called 4-2-1 problem - a single child caring for two parents and four grandparents - is intensifying.

China is hardly alone: aging populations are now a worldwide phenomenon and the trend is accelerating. Life expectancies have risen sharply, from a global average of 49 years in 1955 to 72 years today. By 2040, the global population of those aged 65-and-older will reach 1.3 billion, double what it is today. In developed countries, those 65-and-over now outnumber those under the age of 15 for the first time ever. And while aging populations are commonly believed to be a developed-markets issue, two-thirds of the world’s seniors live in emerging markets. In fact, even in proportionate terms, the share of elderly people in countries like China, Russia, South Korea, Thailand, and Argentina is approaching that of the developed world.

The aging of the global population will have profound consequences for individuals, businesses, and governments. Retirees will collectively control an increasingly significant share of global wealth and spending; in the US, they already spend more than the much-targeted Millennial generation. Overall consumption patterns will change dramatically and companies need to rethink the products and services they offer accordingly. Governments, meanwhile, must grapple with ballooning pension and health care costs as fewer workers are left to support an ever-growing number of seniors.

The longevity mega-trend also opens up important opportunities for investors around the world. To identify investment ideas that could be accessed by institutional investors, we interviewed a range of investment professionals across PGIM, conducted new proprietary research on consumer spending patterns, and met with industry experts in technology, life sciences, venture capital, demography, and actuarial sciences. We believe institutional investors should focus their attention on five resulting investable themes within the broad areas of real estate, health care, and technology: multifamily condos, senior housing, urban life sciences clusters, pharmaceuticals and biotech, and technology-enabled medical services and devices.

Aging populations are now a phenomenon across both developed and emerging markets, and the trend is accelerating. Investors should consider capitalizing on the opportunities arising from this unprecedented global demographic shift.

 

 

 

PGIM, the Global Investment Management Businesses of Prudential Financial, Inc., is a top-10 worldwide* institutional money manager with a heritage of asset management that dates back more than 135 years. Today we partner with institutional clients worldwide with a presence in 16 countries, managing over $960 billion in assets (as of 12/31/15).

*Prudential Financial ranks among the top 10 largest asset managers based on total worldwide institutional assets under management as of 12/31/14, according to a Pensions & Investments ranking published on 5/18/15.