WEBVTT - BlackRock's Wei Li on the Demographic Megatrend

0:00:02.480 --> 0:00:06.519
<v Speaker 1>You're listening to Asia Centric from Bloomberg Intelligence, the podcast

0:00:06.559 --> 0:00:09.360
<v Speaker 1>that pulls back the curtain on global business so you

0:00:09.360 --> 0:00:12.840
<v Speaker 1>can invest better across the Asia Pacific room. I'm John

0:00:12.880 --> 0:00:14.400
<v Speaker 1>Lee in Hong Kong, and.

0:00:14.400 --> 0:00:18.919
<v Speaker 2>I'm Katadmitriyeva, also in Hong Kong. Today we're talking about

0:00:19.040 --> 0:00:23.840
<v Speaker 2>demographics and aging. The world's population is likely to peak

0:00:24.040 --> 0:00:26.840
<v Speaker 2>in the next sixty years according to the United Nations,

0:00:27.400 --> 0:00:30.240
<v Speaker 2>and depending on where you're listening from, your country may

0:00:30.280 --> 0:00:33.440
<v Speaker 2>already be shrinking. One in four people live in a

0:00:33.440 --> 0:00:37.400
<v Speaker 2>place where numbers are already on the decline. Nowhere is

0:00:37.440 --> 0:00:40.559
<v Speaker 2>this trend that felt more than Asia, where countries like

0:00:40.600 --> 0:00:45.240
<v Speaker 2>South Korea and Japan consistently register the lowest birth rates.

0:00:45.600 --> 0:00:48.919
<v Speaker 2>It'll have major impacts on the size of labor markets,

0:00:49.280 --> 0:00:51.440
<v Speaker 2>economic growth, and the way we live.

0:00:52.320 --> 0:00:55.279
<v Speaker 1>But it's not all gloom and doom though. People are

0:00:55.320 --> 0:00:59.680
<v Speaker 1>living longer and generally healthier lives, and as populations shrink,

0:00:59.800 --> 0:01:04.520
<v Speaker 1>there could be some opportunities for businesses and investors. Some countries,

0:01:04.720 --> 0:01:07.920
<v Speaker 1>especially those in emerging markets, are bugging the trend for

0:01:08.000 --> 0:01:12.120
<v Speaker 1>now with relatively young populations. There's also some trends that

0:01:12.200 --> 0:01:15.080
<v Speaker 1>investors may be interested in, like the rise of automation

0:01:15.360 --> 0:01:16.120
<v Speaker 1>and robotics.

0:01:16.680 --> 0:01:19.560
<v Speaker 2>Our guest this week says demographics is one of a

0:01:19.640 --> 0:01:23.440
<v Speaker 2>handful of mega trends set to shape the future of investing.

0:01:24.040 --> 0:01:28.440
<v Speaker 2>Joining us is Way, lead Global Chief investment strategist at Blackrock,

0:01:28.800 --> 0:01:31.440
<v Speaker 2>the world's largest asset manager. Welcome Way.

0:01:31.959 --> 0:01:36.040
<v Speaker 3>Thank you so much, Katia and John for having me Wall.

0:01:36.160 --> 0:01:40.720
<v Speaker 2>It's a pretty existential topic we're talking about today. How

0:01:40.760 --> 0:01:43.200
<v Speaker 2>often in your job do you have to think about

0:01:43.319 --> 0:01:45.400
<v Speaker 2>aging and demographics day today?

0:01:46.760 --> 0:01:49.880
<v Speaker 3>I think more and more. In the past, the focus

0:01:50.040 --> 0:01:53.880
<v Speaker 3>was very much around the cyclical ads and the flows

0:01:53.920 --> 0:01:58.120
<v Speaker 3>of the economy, but we are at this really unique

0:01:58.360 --> 0:02:04.720
<v Speaker 3>juncture where we have the intersection between the cyclical ads

0:02:04.760 --> 0:02:11.400
<v Speaker 3>and the flows, pandemic unwind and also structural forces mega

0:02:11.440 --> 0:02:15.520
<v Speaker 3>forces that you just alluded to. Demographics is one of them,

0:02:15.919 --> 0:02:21.080
<v Speaker 3>The low carbon transition is another one, Geopolitical fragmentation is

0:02:21.120 --> 0:02:25.079
<v Speaker 3>another one, and then more broadly, thinking about the future

0:02:25.280 --> 0:02:29.040
<v Speaker 3>of finance, thinking about the role banks play and private

0:02:29.120 --> 0:02:32.680
<v Speaker 3>credit play is another trend that we're paying attention to.

0:02:32.760 --> 0:02:36.519
<v Speaker 3>And of course AI this the five mega forces that

0:02:36.919 --> 0:02:41.280
<v Speaker 3>black Rock has identified that we think have been and

0:02:41.440 --> 0:02:44.800
<v Speaker 3>will impact the economy and markets more and more.

0:02:45.440 --> 0:02:49.840
<v Speaker 2>So, tell me about the demographics component, because traditionally we

0:02:49.840 --> 0:02:53.640
<v Speaker 2>think about demographics impacting the economy and finance as sort

0:02:53.639 --> 0:02:57.840
<v Speaker 2>of the labor market trinks, the economy slows. Is that

0:02:58.000 --> 0:02:59.600
<v Speaker 2>the only way we should be thinking of it.

0:03:00.400 --> 0:03:04.120
<v Speaker 3>I think you're right, Caasia that the shrinking labor force

0:03:04.400 --> 0:03:08.560
<v Speaker 3>is a main channel, because all else equal, when we're

0:03:08.560 --> 0:03:13.040
<v Speaker 3>looking at a shrinking workforce, it means that an economy

0:03:13.080 --> 0:03:17.680
<v Speaker 3>cannot grow as fast as before. If you look at

0:03:17.880 --> 0:03:21.079
<v Speaker 3>the G seven in the last twenty years or so, right,

0:03:21.120 --> 0:03:24.760
<v Speaker 3>so you look at how much of its growth was

0:03:24.800 --> 0:03:29.600
<v Speaker 3>actually accounted for by growth in labor force. So the

0:03:29.600 --> 0:03:32.000
<v Speaker 3>growth in labor force accounted for about zero point three

0:03:32.000 --> 0:03:36.080
<v Speaker 3>percent of the one point seven percent average growth rate

0:03:36.160 --> 0:03:41.200
<v Speaker 3>according to OECD. And that boost is not only disappearing

0:03:41.480 --> 0:03:46.880
<v Speaker 3>but also reversing, so unless worker productivity rises more rapidly,

0:03:47.280 --> 0:03:51.440
<v Speaker 3>actually we estimate the average economic growth for this group

0:03:51.680 --> 0:03:54.400
<v Speaker 3>was slow to one point two percent. So you're absolutely right,

0:03:54.480 --> 0:03:58.240
<v Speaker 3>the shrinking workforce is the main channel. But there are

0:03:58.320 --> 0:04:02.720
<v Speaker 3>the channels that also affect the economy and markets as well,

0:04:03.160 --> 0:04:09.520
<v Speaker 3>including aging populations, effect inflation. And we think that many

0:04:09.680 --> 0:04:13.920
<v Speaker 3>of the implication of aging for inflation and policy rates

0:04:14.360 --> 0:04:18.360
<v Speaker 3>are currently under appreciated. So we differ a little bit

0:04:18.360 --> 0:04:22.440
<v Speaker 3>from the consensus in that we think aging is inflationary

0:04:22.920 --> 0:04:29.400
<v Speaker 3>because it creates worker shortage and reduces supply capacity by

0:04:29.520 --> 0:04:35.120
<v Speaker 3>more than it reduces demount because retires stop producing economic output,

0:04:35.160 --> 0:04:37.799
<v Speaker 3>but they do not typically spend less, so that's another

0:04:38.240 --> 0:04:41.760
<v Speaker 3>important channel. And then we also look at pension and

0:04:41.920 --> 0:04:47.960
<v Speaker 3>healthcare spending, putting further pressure on government budget as another

0:04:48.440 --> 0:04:51.200
<v Speaker 3>piece of consideration as well, So there are multiple channels

0:04:51.360 --> 0:04:57.000
<v Speaker 3>the aging place in that then affect the economy and markets.

0:04:58.760 --> 0:05:02.640
<v Speaker 1>Atia Centric is produced by Bloomberg Intelligence, where more than

0:05:02.680 --> 0:05:06.760
<v Speaker 1>five hundred experienced analysts and strategists work around the clock

0:05:06.839 --> 0:05:10.880
<v Speaker 1>to bring you timely, world class research. Our coverage spans

0:05:10.920 --> 0:05:15.720
<v Speaker 1>two hundred market industries, currencies, commodities and industries, as well

0:05:15.720 --> 0:05:19.000
<v Speaker 1>as over two thousand equities and credits. If you like

0:05:19.040 --> 0:05:23.000
<v Speaker 1>what you hear, don't forget to subscribe and chirm. Wait

0:05:23.120 --> 0:05:27.760
<v Speaker 1>how does demographics and the aging population impact market returns?

0:05:28.160 --> 0:05:28.360
<v Speaker 3>Now?

0:05:28.400 --> 0:05:33.360
<v Speaker 1>For example, investors often cite India its young population, its

0:05:33.400 --> 0:05:36.800
<v Speaker 1>growing population, and its demographic dividend as a reason to

0:05:37.000 --> 0:05:40.960
<v Speaker 1>buy Indian stocks, but there's also a lot of emerging

0:05:41.000 --> 0:05:44.000
<v Speaker 1>markets with a growing population that haven't done so well.

0:05:44.640 --> 0:05:47.040
<v Speaker 1>Can you explain how does this impact investments?

0:05:48.279 --> 0:05:52.360
<v Speaker 3>Yes, it does impact investment, and all else equal, having

0:05:52.839 --> 0:05:59.800
<v Speaker 3>a growing population potentially greater productivity certainly boats, while boats

0:06:00.040 --> 0:06:04.760
<v Speaker 3>better for overall economic outlook and potentially investment. But for

0:06:04.839 --> 0:06:10.560
<v Speaker 3>emerging markets, the outlook also depends on how while they

0:06:10.640 --> 0:06:15.919
<v Speaker 3>capitalize on their demographic advantage. Here we're talking about improving

0:06:16.000 --> 0:06:22.080
<v Speaker 3>workforce participation, investing in infrastructure. Otherwise, if you just have

0:06:22.640 --> 0:06:26.440
<v Speaker 3>population growth without the supportive kind of measures put in

0:06:26.480 --> 0:06:32.440
<v Speaker 3>place to capitalize that, the higher population could result in

0:06:32.560 --> 0:06:36.840
<v Speaker 3>higher unemployment rate. So country with higher demand for investment

0:06:36.920 --> 0:06:41.760
<v Speaker 3>like India, Indonesia, Mexico, and Saudi Arabia could offer higher return.

0:06:42.520 --> 0:06:46.160
<v Speaker 3>But it's a big kind of contingency here is that

0:06:46.240 --> 0:06:50.880
<v Speaker 3>they really put in policies to capitalize on their demographic advantage.

0:06:51.040 --> 0:06:57.920
<v Speaker 3>And equally, lower growth is not necessarily inevitable for aging economies.

0:06:58.040 --> 0:07:00.880
<v Speaker 3>It also depends on how well they are adapt to

0:07:01.040 --> 0:07:05.159
<v Speaker 3>age in population, whether these economies find ways to offset

0:07:05.800 --> 0:07:08.880
<v Speaker 3>the fall in the working age population. So, for example,

0:07:08.960 --> 0:07:13.040
<v Speaker 3>governments can try to boost a shrinking workforce by attracting

0:07:13.080 --> 0:07:16.920
<v Speaker 3>workers from other countries increasing the share of women and

0:07:17.080 --> 0:07:21.720
<v Speaker 3>other underrepresented groups in the labor force, or raising productivity

0:07:21.760 --> 0:07:25.280
<v Speaker 3>by investing in automation and AI, which we have seen

0:07:25.720 --> 0:07:30.960
<v Speaker 3>in Korea, Japan and also other parts of developed economies

0:07:31.000 --> 0:07:31.400
<v Speaker 3>as well.

0:07:32.000 --> 0:07:35.520
<v Speaker 2>You mentioned Korea and Japan, Are they perhaps examples of

0:07:35.600 --> 0:07:39.160
<v Speaker 2>countries that are doing it right where the governments have

0:07:39.280 --> 0:07:43.640
<v Speaker 2>identified that, you know, the demographics shift is very real.

0:07:43.680 --> 0:07:47.040
<v Speaker 2>People are getting older, the fertility rate is dropping. Do

0:07:47.080 --> 0:07:49.760
<v Speaker 2>you see those as kind of prime examples of countries

0:07:49.960 --> 0:07:52.960
<v Speaker 2>getting it right in terms of adjusting to the new reality.

0:07:54.080 --> 0:07:57.720
<v Speaker 3>I think so. They definitely have presented a playbook in

0:07:57.800 --> 0:08:02.520
<v Speaker 3>terms of how aging economies can help offset the aging

0:08:02.560 --> 0:08:07.880
<v Speaker 3>economy and productivity fall by other measures. Right, so, Career

0:08:08.080 --> 0:08:12.880
<v Speaker 3>and Japan have aggressively embraced the robotics as a solution

0:08:13.080 --> 0:08:17.320
<v Speaker 3>to their declining workforce. Career in particular, positioning itself as

0:08:17.360 --> 0:08:22.240
<v Speaker 3>a global leader in industrial automation heavily investing in AI

0:08:22.400 --> 0:08:27.160
<v Speaker 3>driven and service robotics, and Japan similarly as well, focuses

0:08:27.200 --> 0:08:34.120
<v Speaker 3>on automation, especially in elder care and advanced manufacturing technologies,

0:08:34.360 --> 0:08:39.679
<v Speaker 3>very much capitalizing on its technological leading position. Career Japan

0:08:39.760 --> 0:08:43.360
<v Speaker 3>is a good example, but other examples can be found

0:08:43.400 --> 0:08:46.640
<v Speaker 3>outside of Asia. You look at Germany, for example, very

0:08:46.679 --> 0:08:50.720
<v Speaker 3>much stands out as a leader in robotic adoption. In

0:08:50.840 --> 0:08:56.240
<v Speaker 3>Europe really very much known for its advanced manufacturing capabilities

0:08:56.280 --> 0:09:00.199
<v Speaker 3>and high levels of automation in the industrial sectors. Are

0:09:00.200 --> 0:09:03.679
<v Speaker 3>good examples that can be found across the world. But

0:09:04.040 --> 0:09:06.559
<v Speaker 3>Korea Japan are very much standing out in Asia.

0:09:07.200 --> 0:09:09.640
<v Speaker 1>Well, if we could just talk about Korea, in Japan

0:09:09.840 --> 0:09:14.360
<v Speaker 1>and in particular South Korea, in terms of the fertility rates,

0:09:14.400 --> 0:09:17.960
<v Speaker 1>it's absolutely off the scale. I think it's the worst.

0:09:18.160 --> 0:09:21.640
<v Speaker 1>Korea right now is just having zero point seven children

0:09:21.760 --> 0:09:24.560
<v Speaker 1>per woman. That's probably the worst in the world. I

0:09:24.600 --> 0:09:27.840
<v Speaker 1>know Japan's not that far behind. Why do you think

0:09:28.320 --> 0:09:32.520
<v Speaker 1>the fertility issue is the biggest in these East Asian countries.

0:09:33.640 --> 0:09:38.320
<v Speaker 3>It's hard to opine on reasons for low birth rate,

0:09:38.440 --> 0:09:41.240
<v Speaker 3>but I would observe that this is not a unique

0:09:41.240 --> 0:09:47.680
<v Speaker 3>issue for Korea and Japan, because falling birth rates can

0:09:47.760 --> 0:09:50.920
<v Speaker 3>be observed in the rest of the world as well.

0:09:51.280 --> 0:09:55.680
<v Speaker 3>In fact, globally, the dependency racial which is a measure

0:09:55.800 --> 0:10:00.720
<v Speaker 3>of population aging, it was rapidly decreased in prior to

0:10:00.800 --> 0:10:04.680
<v Speaker 3>twenty twenty and now that is no longer the case,

0:10:04.800 --> 0:10:10.000
<v Speaker 3>so population agent is more pronounced going forward as projection

0:10:10.160 --> 0:10:11.440
<v Speaker 3>by United Nations.

0:10:11.559 --> 0:10:14.480
<v Speaker 2>Yeah, and basically dependency ratio, as you said, it basically

0:10:14.559 --> 0:10:19.400
<v Speaker 2>means that we're seeing more old people to young people essentially.

0:10:20.160 --> 0:10:24.160
<v Speaker 3>That's right, that's right. It was declining globally before and

0:10:24.240 --> 0:10:28.280
<v Speaker 3>now that is increasing as per projection of the United Nations.

0:10:28.320 --> 0:10:31.360
<v Speaker 3>So what you just described is not a unique phenomenon

0:10:31.679 --> 0:10:36.640
<v Speaker 3>in South Korea, and in fact has actually demonstrated how

0:10:36.960 --> 0:10:42.520
<v Speaker 3>despite aging population, by relying on other measures, the economy

0:10:42.559 --> 0:10:46.760
<v Speaker 3>can help offset some of the headwinds from aging population.

0:10:48.200 --> 0:10:52.920
<v Speaker 1>Earlier this year, there was quite an amusing development. Japan's

0:10:53.080 --> 0:10:57.400
<v Speaker 1>og Holdings announced that they're going to stop making diapers

0:10:57.440 --> 0:11:01.600
<v Speaker 1>for babies and instead focus on viapers for adults. It's

0:11:01.600 --> 0:11:03.760
<v Speaker 1>a music on a number of fronts. I didn't know

0:11:03.880 --> 0:11:07.680
<v Speaker 1>there was diapers for adults. But you mentioned some industries

0:11:07.679 --> 0:11:10.840
<v Speaker 1>that benefit, and also you know from this trend of

0:11:10.840 --> 0:11:14.480
<v Speaker 1>an aging population, obviously this example is a company that

0:11:14.800 --> 0:11:18.520
<v Speaker 1>is negatively impacted. Can you elaborate more what type of

0:11:18.640 --> 0:11:22.120
<v Speaker 1>industries would be impacted by an aging population?

0:11:23.440 --> 0:11:27.400
<v Speaker 3>Yes, Actually that is a great question because Japan stands

0:11:27.400 --> 0:11:31.840
<v Speaker 3>out for many reasons. So similar to career, Japan is

0:11:32.080 --> 0:11:37.160
<v Speaker 3>heavily affected by aging. It has a very high participation

0:11:37.480 --> 0:11:41.480
<v Speaker 3>rate among over sixty fives, and female participation rate has

0:11:41.520 --> 0:11:45.840
<v Speaker 3>been rising rapidly. So that's another example of how aging

0:11:46.120 --> 0:11:49.640
<v Speaker 3>population adaptation measures can be put in place to offset

0:11:50.080 --> 0:11:54.160
<v Speaker 3>the trend of demographics. And what we have seen is

0:11:54.200 --> 0:12:00.480
<v Speaker 3>that sectors like healthcare, sectors like elderly home elder care

0:12:00.720 --> 0:12:04.560
<v Speaker 3>that very much cater to age in population are while

0:12:04.720 --> 0:12:10.000
<v Speaker 3>positioned to benefit, but it may not happen straight away.

0:12:10.120 --> 0:12:11.520
<v Speaker 3>So this is a question that we get a lot,

0:12:11.559 --> 0:12:15.360
<v Speaker 3>which is that demographic trend is the most predictable trend.

0:12:15.559 --> 0:12:19.960
<v Speaker 3>It's written in the shape of the population for years

0:12:19.960 --> 0:12:22.480
<v Speaker 3>and years and years. How do we position for that,

0:12:22.960 --> 0:12:26.800
<v Speaker 3>because it must have been so clear for everyone to

0:12:26.880 --> 0:12:29.560
<v Speaker 3>position for that, because it's inevitable, this is the direction

0:12:29.640 --> 0:12:34.400
<v Speaker 3>of travel. What we have seen is the relative performance

0:12:34.600 --> 0:12:38.920
<v Speaker 3>of healthcare as a sector over the broader appley market.

0:12:39.400 --> 0:12:44.760
<v Speaker 3>That relative performance actually closely closely mirror the dependency ratio

0:12:45.080 --> 0:12:47.960
<v Speaker 3>in Japanese economy, which means that even though this is

0:12:47.960 --> 0:12:53.079
<v Speaker 3>something that was very predictable from years ago, the performance

0:12:53.080 --> 0:12:58.760
<v Speaker 3>doesn't come through until the economic data actually clearly supports

0:12:58.920 --> 0:13:03.840
<v Speaker 3>the population aging. So investment opportunities can still be found

0:13:04.320 --> 0:13:11.360
<v Speaker 3>by positioning for those trends now. Because our study shows

0:13:11.640 --> 0:13:16.840
<v Speaker 3>that it takes time for the relative performance to come through.

0:13:17.040 --> 0:13:21.600
<v Speaker 3>It takes time for markets to adjust for the relative trend,

0:13:22.000 --> 0:13:24.920
<v Speaker 3>and it doesn't happen straight away. And I think that

0:13:25.120 --> 0:13:29.840
<v Speaker 3>is because markets are oftentimes only capable of focusing on

0:13:29.840 --> 0:13:33.679
<v Speaker 3>one thing and it doesn't have that as much long

0:13:33.800 --> 0:13:38.080
<v Speaker 3>termism in terms of how ahead it looks. That means

0:13:38.120 --> 0:13:41.240
<v Speaker 3>that even something as slow moving and as predictable as

0:13:41.280 --> 0:13:47.800
<v Speaker 3>demographic trends can still produce investment opportunities for us to capitalize.

0:13:48.520 --> 0:13:52.080
<v Speaker 2>So how do you sort of price it in or

0:13:52.200 --> 0:13:54.760
<v Speaker 2>position for it now? Because as you said, these are

0:13:54.920 --> 0:13:59.439
<v Speaker 2>very long term trends, demographics aging, long term trend Are

0:13:59.440 --> 0:14:03.040
<v Speaker 2>there ways that investors today can sort of make a

0:14:03.120 --> 0:14:06.880
<v Speaker 2>bet on certain economies or certain markets or certain companies

0:14:06.960 --> 0:14:09.280
<v Speaker 2>And if so, what would those be? How would you

0:14:09.320 --> 0:14:11.720
<v Speaker 2>advise an investor today on that?

0:14:12.679 --> 0:14:14.960
<v Speaker 3>Absolutely, so there are three ways to think about it.

0:14:15.160 --> 0:14:20.240
<v Speaker 3>So over the long term, sectors like healthcare, like infrastructure

0:14:20.680 --> 0:14:25.040
<v Speaker 3>can really benefit from the greater demand as populations age,

0:14:25.440 --> 0:14:28.960
<v Speaker 3>which is something that we can position for even right now,

0:14:29.040 --> 0:14:32.080
<v Speaker 3>even though it is predictable, because as I said, markets

0:14:32.120 --> 0:14:35.720
<v Speaker 3>can be quite slow in price in the impact of

0:14:36.080 --> 0:14:39.080
<v Speaker 3>this predictable trend. So this is one way and not ways.

0:14:39.240 --> 0:14:42.200
<v Speaker 3>Is do you look at countries with higher demand for investment.

0:14:42.240 --> 0:14:46.200
<v Speaker 3>You talked about India, There are other countries likely in

0:14:46.360 --> 0:14:52.640
<v Speaker 3>emerging economies, emerging markets with greater population growth that are

0:14:52.800 --> 0:14:57.600
<v Speaker 3>likely to offer investors higher returns. So here we're talking

0:14:57.640 --> 0:15:05.680
<v Speaker 3>about greater investment opportunities in productive capital like machinery, transport, infrastructure, housing, schools,

0:15:05.680 --> 0:15:10.120
<v Speaker 3>and hospitals. And here again countries in Asia like India

0:15:10.240 --> 0:15:15.520
<v Speaker 3>Indonesia standout. They have had very high investment rates historically

0:15:16.160 --> 0:15:21.400
<v Speaker 3>and that is even adjusted for population growth because they

0:15:21.600 --> 0:15:25.440
<v Speaker 3>urganized very very quickly. Right our study of the demographics

0:15:25.600 --> 0:15:28.840
<v Speaker 3>implies that this is still likely going to be true

0:15:29.000 --> 0:15:31.800
<v Speaker 3>in the coming years and decades. So that's another way

0:15:32.040 --> 0:15:35.080
<v Speaker 3>of looking at that. And then on a shorterm basis,

0:15:35.440 --> 0:15:40.480
<v Speaker 3>there are trends that are impacting markets that may not

0:15:40.800 --> 0:15:45.120
<v Speaker 3>be here to stay and that requires immediate kind of

0:15:45.720 --> 0:15:49.600
<v Speaker 3>attention and positioning portfolios for So a case in point

0:15:49.960 --> 0:15:54.080
<v Speaker 3>is if you look at the larger than expected rise

0:15:54.240 --> 0:15:56.880
<v Speaker 3>in immigration in the US. Right, So I give you

0:15:56.880 --> 0:16:00.840
<v Speaker 3>an example. In January, the CBO revised it's immigration number

0:16:00.840 --> 0:16:04.800
<v Speaker 3>for twenty twenty four to three point three million, which

0:16:04.840 --> 0:16:07.840
<v Speaker 3>is a record breaking level and up from around one

0:16:07.920 --> 0:16:12.240
<v Speaker 3>million expected the year before. And what that has down

0:16:12.320 --> 0:16:14.760
<v Speaker 3>to the US economy, which is the biggest economy, the

0:16:14.760 --> 0:16:19.680
<v Speaker 3>biggest market globally, is that that has unexpectedly boosted payrolls

0:16:20.000 --> 0:16:25.600
<v Speaker 3>this year and helped service inflation to cool down at

0:16:25.720 --> 0:16:30.000
<v Speaker 3>least temporarily. So for coming out of the pandemic and

0:16:30.200 --> 0:16:33.160
<v Speaker 3>throughout the course of the pandemic, sticking inflation has been

0:16:33.160 --> 0:16:36.120
<v Speaker 3>a main consideration for the FAT in terms of how

0:16:36.240 --> 0:16:38.520
<v Speaker 3>quickly it can cut rate. So the fact that the

0:16:38.560 --> 0:16:42.800
<v Speaker 3>immigration boost, that the larger than expected immigration, the positive

0:16:42.840 --> 0:16:46.560
<v Speaker 3>supply shop to the US labor force, meant that service

0:16:46.600 --> 0:16:51.640
<v Speaker 3>inflation was cooling down faster than expected, at least temporarily.

0:16:52.120 --> 0:16:54.880
<v Speaker 3>And at the same time you look at the growth picture,

0:16:55.120 --> 0:16:58.960
<v Speaker 3>it's actually somewhat resilient, right. And I think this micro

0:16:59.200 --> 0:17:05.560
<v Speaker 3>backdrop much helped the US economy US equity market performance. Yes,

0:17:05.600 --> 0:17:07.719
<v Speaker 3>a lot of that earlier on in the year has

0:17:07.760 --> 0:17:12.040
<v Speaker 3>been concentrated in the AI theme, but now it's very

0:17:12.119 --> 0:17:15.640
<v Speaker 3>much supported by growth is holding up okay, and inflation

0:17:15.880 --> 0:17:20.440
<v Speaker 3>is dropping very much thanks to the positive supply shock

0:17:20.720 --> 0:17:23.800
<v Speaker 3>of the immigration front. And this is not something that's

0:17:23.840 --> 0:17:26.560
<v Speaker 3>just happening in the US, right. Immigration has also been

0:17:26.600 --> 0:17:30.600
<v Speaker 3>increasing in Europe as well, but this is less talked about.

0:17:31.280 --> 0:17:36.240
<v Speaker 3>So these are the near term ways that investors can

0:17:36.720 --> 0:17:40.480
<v Speaker 3>look at to capitalize changing trends usin populations.

0:17:41.119 --> 0:17:44.440
<v Speaker 1>That's quite an interesting view because immigration is often blamed

0:17:44.520 --> 0:17:49.280
<v Speaker 1>for increasing housing prices rent in these countries, but it's

0:17:49.280 --> 0:17:52.080
<v Speaker 1>obviously had a you know, a positive impact on inflation.

0:17:52.760 --> 0:17:57.320
<v Speaker 1>I wanted to talk about China. Now, China is also

0:17:58.119 --> 0:18:00.840
<v Speaker 1>having a big problem in terms of an aging population.

0:18:01.200 --> 0:18:04.640
<v Speaker 1>How does that impact your views on China and what

0:18:04.680 --> 0:18:08.280
<v Speaker 1>could happen if China, like, you know, possibly follows down

0:18:08.320 --> 0:18:11.040
<v Speaker 1>the root of you know, careers fertility rate.

0:18:12.440 --> 0:18:15.400
<v Speaker 3>Yeah, so China is no longer the most populated country

0:18:15.720 --> 0:18:19.520
<v Speaker 3>in the world, and this is a challenge for long

0:18:19.600 --> 0:18:23.440
<v Speaker 3>term growth. Right. So there is kind of cyclically what's

0:18:23.440 --> 0:18:26.719
<v Speaker 3>happening to the Chinese economy, and the central authorities are

0:18:26.720 --> 0:18:29.680
<v Speaker 3>trying to support the economy, but maybe the measures are

0:18:30.000 --> 0:18:33.280
<v Speaker 3>so far piecemeal and not big enough, not the big

0:18:33.320 --> 0:18:37.240
<v Speaker 3>boluka that markets sometimes are hoping for, which also explains

0:18:37.280 --> 0:18:40.399
<v Speaker 3>why Chinese accrea market is the one major apple market

0:18:40.480 --> 0:18:44.600
<v Speaker 3>that is done since the pandemic rather than so cyclically.

0:18:44.680 --> 0:18:49.639
<v Speaker 3>There are challenges, but over the long term, declining population

0:18:50.440 --> 0:18:55.520
<v Speaker 3>is a big reason, together with the needful reform, why

0:18:55.800 --> 0:18:59.320
<v Speaker 3>we believe Chinese economy is slowing down. Right, So by

0:18:59.320 --> 0:19:02.240
<v Speaker 3>the end of the decade, we are expecting Chinese economy

0:19:02.280 --> 0:19:05.040
<v Speaker 3>to have a three handle in terms of annual growth,

0:19:05.080 --> 0:19:08.879
<v Speaker 3>which puts it not much faster in terms of growth

0:19:08.960 --> 0:19:13.080
<v Speaker 3>rate than many developed economies. So all of that just

0:19:13.119 --> 0:19:20.520
<v Speaker 3>to say, aging population, aging demographics is a structural headwing

0:19:20.880 --> 0:19:25.119
<v Speaker 3>for Chinese growth or else equal. But as I said earlier,

0:19:25.320 --> 0:19:30.280
<v Speaker 3>how the countries, how China adapt to this by incorporating

0:19:31.320 --> 0:19:36.200
<v Speaker 3>AI industrial robotics and also kind of on the immigration front,

0:19:36.240 --> 0:19:39.960
<v Speaker 3>could potentially help offset some of that.

0:19:41.119 --> 0:19:44.439
<v Speaker 2>So I wanted to come back to that idea that

0:19:44.480 --> 0:19:49.080
<v Speaker 2>an aging population can actually be inflationary because a few

0:19:49.080 --> 0:19:53.440
<v Speaker 2>examples we have recently show that the opposite might be true.

0:19:53.480 --> 0:19:57.920
<v Speaker 2>You know, you have this last period in Japan China

0:19:57.960 --> 0:20:02.120
<v Speaker 2>as well as running into deflation issues right now, isn't

0:20:02.119 --> 0:20:06.440
<v Speaker 2>a period of deflation and has some challenges in demographics

0:20:06.440 --> 0:20:09.480
<v Speaker 2>and aging. So why does black Rock see that this

0:20:09.600 --> 0:20:13.560
<v Speaker 2>demographics issue could actually be inflationary to economies.

0:20:14.720 --> 0:20:17.800
<v Speaker 3>This is a great question, Katina, And our view, as

0:20:17.800 --> 0:20:22.239
<v Speaker 3>I said earlier, is that it's a somewhat non consensus view, right.

0:20:22.280 --> 0:20:26.080
<v Speaker 3>We say that we disagree with consensus in believing that

0:20:26.200 --> 0:20:30.040
<v Speaker 3>aging population would be inflationary, and a lot of the

0:20:30.040 --> 0:20:33.760
<v Speaker 3>consensus was very much driven exactly by the last decades

0:20:34.000 --> 0:20:37.720
<v Speaker 3>in Japan. It was a period when Japan was aging,

0:20:37.800 --> 0:20:42.080
<v Speaker 3>and it was also clearly a period of deflation. But

0:20:42.240 --> 0:20:44.879
<v Speaker 3>I would say that our conviction was very much framed

0:20:44.880 --> 0:20:48.919
<v Speaker 3>around or else equal, this is what we expect to happen.

0:20:49.240 --> 0:20:53.440
<v Speaker 3>But in the case of Japan, there were other episodes,

0:20:53.560 --> 0:20:57.840
<v Speaker 3>other factors playing out that led to this period of

0:20:58.119 --> 0:21:03.800
<v Speaker 3>both aging and deflation. So first, we had the late

0:21:04.160 --> 0:21:07.879
<v Speaker 3>nineteen eighties asset price bubble, talking about the stock and

0:21:07.920 --> 0:21:11.920
<v Speaker 3>housing market bubble that led to the subsequent last decade

0:21:12.320 --> 0:21:17.560
<v Speaker 3>and the banking crisis, and these crisis clearly were deflationary

0:21:17.680 --> 0:21:22.440
<v Speaker 3>and played a more dominant role than the population demographic trend.

0:21:22.560 --> 0:21:26.199
<v Speaker 3>And second, if you look at the broader global picture

0:21:26.320 --> 0:21:29.760
<v Speaker 3>when Japan was aging, so Japan was aging when the

0:21:29.800 --> 0:21:33.000
<v Speaker 3>rest of the world was not. So Japan's workforce was

0:21:33.119 --> 0:21:38.120
<v Speaker 3>shrinking at a time when labor was abundant elsewhere in Asia,

0:21:38.520 --> 0:21:42.840
<v Speaker 3>and China was integrating in the global labor market. Like

0:21:43.320 --> 0:21:47.360
<v Speaker 3>China was growing, the population was younger, it was joining wto.

0:21:47.760 --> 0:21:52.959
<v Speaker 3>So the global dynamics has meant that if Japan's companies

0:21:53.200 --> 0:21:57.040
<v Speaker 3>invested heavily abroad, and they did, they were able to

0:21:57.119 --> 0:22:01.399
<v Speaker 3>reduce production costs and they did not. Fast forward to

0:22:01.520 --> 0:22:04.000
<v Speaker 3>where we are now twenty twenty five, we're in a

0:22:04.040 --> 0:22:07.960
<v Speaker 3>fundamentally different environment. You know, we talked about other mega

0:22:07.960 --> 0:22:12.000
<v Speaker 3>forces also playing a big role, and they are interacting

0:22:12.040 --> 0:22:16.280
<v Speaker 3>with each other. Geopolitical fragmentation is another mega force, and

0:22:16.440 --> 0:22:22.720
<v Speaker 3>geopolitical tension has meant that globalization is stalling, is getting rewired.

0:22:23.200 --> 0:22:29.720
<v Speaker 3>And additionally, many developed economies and some emerging markets China

0:22:29.840 --> 0:22:34.480
<v Speaker 3>included aging at the same time, so globally, as I

0:22:34.880 --> 0:22:39.600
<v Speaker 3>was citing this figure, the dependency racial previously was rapidly

0:22:39.680 --> 0:22:44.240
<v Speaker 3>decreasing prior to right before the pandemic, and now it

0:22:44.320 --> 0:22:46.840
<v Speaker 3>is no longer the case in facts moving in the

0:22:46.840 --> 0:22:50.560
<v Speaker 3>other direction. So the global dynamics, the global context is

0:22:50.600 --> 0:22:54.680
<v Speaker 3>no longer helping. So in a way, Japan was aging,

0:22:54.840 --> 0:22:59.400
<v Speaker 3>but supported by the broader picture that aging economies now

0:22:59.680 --> 0:23:02.480
<v Speaker 3>can no longer depend on as a japandee back.

0:23:02.520 --> 0:23:06.680
<v Speaker 2>Then do you find that more investors and maybe even

0:23:06.880 --> 0:23:10.160
<v Speaker 2>more of your colleagues are asking about this topic more?

0:23:12.200 --> 0:23:15.359
<v Speaker 3>I tell you one anecdote, and the short answer to

0:23:15.400 --> 0:23:20.000
<v Speaker 3>this is yes, but it's a funny anecdote. So I

0:23:20.080 --> 0:23:25.240
<v Speaker 3>hosted the Internal Investor Summit twice a year, and every

0:23:25.280 --> 0:23:27.080
<v Speaker 3>time we talk about what was important for the economy

0:23:27.119 --> 0:23:31.920
<v Speaker 3>and for markets. The last Internal Investor Summit that I hosted,

0:23:32.640 --> 0:23:36.600
<v Speaker 3>I framed it around mega forces. I framed it around

0:23:36.680 --> 0:23:39.840
<v Speaker 3>the five mega forces that we just talked about, and

0:23:39.880 --> 0:23:44.480
<v Speaker 3>I asked investors to kind of give their preference in

0:23:44.600 --> 0:23:46.560
<v Speaker 3>terms of which one they want to deep dive into

0:23:46.840 --> 0:23:52.760
<v Speaker 3>in breakout sessions, so AI had the most interest and

0:23:53.440 --> 0:23:57.639
<v Speaker 3>aging population had the least people joining during the breakout.

0:23:57.960 --> 0:24:00.440
<v Speaker 3>But when we then bring everyone to get back on

0:24:00.520 --> 0:24:04.399
<v Speaker 3>stage to debate how much more is in the price

0:24:05.119 --> 0:24:10.879
<v Speaker 3>where the delta opportunities are actually the aging population mega

0:24:10.880 --> 0:24:16.040
<v Speaker 3>force presented disconnect and opportunities in a way that is

0:24:16.520 --> 0:24:19.360
<v Speaker 3>more surprising that there is more surprising than the other

0:24:19.440 --> 0:24:22.040
<v Speaker 3>mega forces. So the some bite that I took away

0:24:22.040 --> 0:24:25.159
<v Speaker 3>from this Internet investor summits that I alsto is the

0:24:25.200 --> 0:24:31.320
<v Speaker 3>investors were telling me it's the most boring and predictable trend,

0:24:31.400 --> 0:24:34.800
<v Speaker 3>and yet it is the most important trend to get right,

0:24:34.880 --> 0:24:38.320
<v Speaker 3>given how much disconnect there is between the attention paid

0:24:38.320 --> 0:24:42.040
<v Speaker 3>to it and the opportunities that it represents. So yes,

0:24:42.119 --> 0:24:44.240
<v Speaker 3>more and more focused on this trend.

0:24:44.400 --> 0:24:47.120
<v Speaker 2>So who knew aging could be sexier than AI?

0:24:48.000 --> 0:24:49.000
<v Speaker 3>They're both sexy.

0:24:50.880 --> 0:24:54.439
<v Speaker 2>Well, we've covered a lot of themes and ideas here.

0:24:54.960 --> 0:24:57.920
<v Speaker 2>Is there anything else that you wanted to talk about?

0:24:58.720 --> 0:25:05.960
<v Speaker 3>Nothing new other than to reiterate the importance of paying

0:25:06.240 --> 0:25:13.200
<v Speaker 3>more attention to structural forces at this point compared to before.

0:25:13.480 --> 0:25:19.480
<v Speaker 3>Right now, cyclical data are very noisy, and especially given

0:25:19.520 --> 0:25:22.119
<v Speaker 3>the distortion coming out of the pandemic as some of

0:25:22.160 --> 0:25:25.399
<v Speaker 3>the mismatch on wines, it's very noisy. And if we

0:25:25.480 --> 0:25:31.399
<v Speaker 3>don't have a proper anchor for how economy is playing

0:25:31.400 --> 0:25:34.560
<v Speaker 3>out and what markets should be focused on, then we

0:25:34.720 --> 0:25:38.720
<v Speaker 3>could really make the risk of extrapolating too much a

0:25:38.760 --> 0:25:42.320
<v Speaker 3>couple of data points and swing wildly in terms of

0:25:42.359 --> 0:25:44.600
<v Speaker 3>the narrative. Right like you saw at the beginning of

0:25:44.600 --> 0:25:48.200
<v Speaker 3>the year, the heart landing narrative and then soft landing narrative,

0:25:48.240 --> 0:25:51.040
<v Speaker 3>and the no landing narrative and a heart landing narrative again.

0:25:51.359 --> 0:25:55.200
<v Speaker 3>You see how just paying attention to cyclical adds and

0:25:55.240 --> 0:26:00.840
<v Speaker 3>the flows can be very unnecessarily volatile and confused. And

0:26:00.920 --> 0:26:03.600
<v Speaker 3>whereas a lot of this can be explained when we

0:26:03.640 --> 0:26:06.560
<v Speaker 3>put on that structural head, when we view what's happening

0:26:06.600 --> 0:26:08.960
<v Speaker 3>through the structural lens. So all of that just to say,

0:26:09.400 --> 0:26:13.679
<v Speaker 3>mega forces and structural forces are going to matter more

0:26:13.840 --> 0:26:18.240
<v Speaker 3>and more, and the effect and the interplay of these

0:26:18.240 --> 0:26:20.960
<v Speaker 3>mega forces are likely going to amplify its impact on

0:26:21.000 --> 0:26:23.840
<v Speaker 3>the macro environment. So the time is now to be

0:26:23.840 --> 0:26:26.720
<v Speaker 3>paying attention to aging population. The time is now to

0:26:26.760 --> 0:26:29.880
<v Speaker 3>be paying attention to the low carbon transition in terms

0:26:29.920 --> 0:26:31.520
<v Speaker 3>of the broader impact.

0:26:32.680 --> 0:26:38.960
<v Speaker 1>Fantastic, It's been a fascinating discussion on demographics, Asia's aging

0:26:39.000 --> 0:26:43.280
<v Speaker 1>population and how this impacts investment decisions. Thank you way

0:26:43.359 --> 0:26:44.200
<v Speaker 1>for joining the show.

0:26:44.640 --> 0:26:46.840
<v Speaker 3>Thank you so much for having me. I really enjoyed

0:26:46.840 --> 0:26:47.560
<v Speaker 3>our conversation.

0:26:48.520 --> 0:26:52.119
<v Speaker 2>I'm John Lee in Hong Kong and I'm Katidmitrieva, also

0:26:52.160 --> 0:26:52.720
<v Speaker 2>in Hong Kong.

0:26:53.040 --> 0:26:55.840
<v Speaker 1>This episode was produced by Clara Chen and you've been

0:26:55.880 --> 0:26:58.000
<v Speaker 1>listening to the Asia Centric podcast