How does an ageing population affects the Singapore economy? 6 sectors to ‘hedge’ yourselves against it.

Singapore has transformed itself from a third world economy to first in the last 40 years. With no resources, we progressed to be one of the most highly developed free-market economies in the world. Our success was well documented and we were part of the Four Asian Tigers, a group of highly developed economies, along with Hong Kong, South Korea and Taiwan. Our economic prosperity was partly due to a young and growing workforce. All four Asian Tigers have a highly educated and productive work force compared to others in the region. 50 years since independence, our population is ageing so quickly that we may no longer be as competitive as before.

uob
Source: UOB research

According to UOB research, for the first time in Singapore’s modern economic history, 2018 will be the year where the percentage of residents who are seniors (ie: above 65 years old) will be equal to that of juniors (ie: below 15 years old) at 14%. It was also estimated that by 2030, the percentage of below 15-year-olds to fall to only 11%, while that of the above 65-year-olds will reach 27% of the resident population. That will put us in the similar situation as Japan today – we are now just 12 years away.

This table shows the changing demographic trends in Singapore from 1990 to 2014:

Age group (years) 1990 2000 2010 2011 2012 2013 2014
Below 15 23.00% 21.90% 17.40% 16.80% 16.40% 16.00% 15.70%
15–24 16.90% 12.90% 13.50% 13.60% 13.70% 13.60% 13.20%
25–34 21.50% 17.00% 15.10% 14.80% 14.40% 14.40% 14.40%
35–44 16.90% 19.40% 16.70% 16.40% 16.30% 16.10% 16.00%
45–54 9.00% 14.30% 16.60% 16.70% 16.50% 16.40% 16.10%
55–64 6.70% 7.20% 11.70% 12.40% 12.70% 13.10% 13.40%
65 and over 6.00% 7.20% 9.00% 9.30% 9.90% 10.50% 11.20%
Median age (years) 29.8 34 37.4 38 38.4 38.9 39.3

There are 3 notable trends that can be identified here:

1) Age group of below 15 year olds gradually declined.

2) Age group of 55 – 64 year olds and above 65 year olds (retirees) steadily increased.

3) Median age of the population has been increasing over the past 20 years.

Already, Singapore is the oldest society in ASEAN, with the median age of the resident population at 40.5 years as of 2017, whereas that for ASEAN is only expected to be 29.8 years in 2020. So how does an ageing population affects the economy?

  1. A decline in labour participation rate and a slowdown in productivity growth.
  2. Increase in government expenditure, in particular towards healthcare services and pension, while a decrease in government revenue as a result of lower tax income.
  3. Lower consumer spending.

An ageing workforce is one that the government has been trying to tackle head-on for the past few years, so far we have seen proposals to increase immigration of foreigners, encouraging Singaporeans to give birth to more children, encouraging older workers to remain or rejoin the workforce and raising the retirement age. Although I would hate to admit it, these are necessary measures in order for us to stay competitive as other ASEAN nations continue to benefit from their young and growing workforce.

Despite all the gloom and doom, what can we do to financially protect us from this damaging secular trend?

Investing in stocks that will benefit from the changing demographics. 

Here are some sectors that you can consider to ‘hedge’ yourselves against it:

Healthcare 

With an older population, the need for healthcare services will increase. Businesses providing medical centers, hospitals, treatment facilities and chain of clinics will benefit in the long term. Stocks to consider: Raffles Medical, Thomson Medical & TalkMed Group.

Healthcare equipment & accessories

Increase in demand for equipment & accessories such as surgical gloves, medical devices and laboratory instruments. Stocks to consider: Top Glove Corp, Techcomp Holdings & Vicplas International.

Injection Molding & Precision Assembly businesses with exposure in the healthcare sector

These are businesses that serve healthcare equipment manufacturers and suppliers. Most of these companies do not only serve healthcare sector but consumer IT and industrial machinery sectors as well. Investing in these companies can be a diversified option if you’re adverse to putting all eggs in a basket. Stocks to consider: Sunningdale Tech,

Aged care facilities

With an ageing population, the demand for aged care services will increase. Stocks to consider: SPH ( Owns Orange Valley via Invest Healthcare) & First REIT.

  • ParkwayLife REIT – Owns a nursing home operator however its assets are located in Japan, if there are plans in future to operate in Singapore, this can be considered too.

Pharmaceuticals

Specifically, businesses selling topical analgesic products such as ointments, muscle rubs, arthritis rubs, joint rubs etc. Stock to consider: Haw Par Corp.

Artificial intelligence, Automation & Robotics

This is a relatively new industry which I foresee to replace labour intensive jobs such as manufacturing and construction. With a declining labour force and a shortage of workers, companies will turn to automation and robotics to maintain high levels of productivity to remain competitive. Currently, we have not had an SGX listed company in this industry however some of our local SMEs are already embracing the technology to stay ahead in the market, keep a look out for one as this will be game-changing.

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The information contained in this website is provided to you for general information/circulation only and is not intended to nor will it create/induce the creation of any binding legal relations. The information or opinions provided do not constitute investment advice, a recommendation, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person or group of persons acting on this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise.

You should seek advice from a financial adviser regarding the suitability of the investment products mentioned, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to purchase the investment product. In the event that you choose not to obtain advice from a financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest.

Any views, opinions, references or other statements or facts provided in this blog/website are personal views. No liability is accepted for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on the information provided herein.

 

 

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