Global Weekly Commentary: Playing demographic divergence now
Pinpointing demographic winners
Working-age populations are declining in major economies. We favor countries that are better adapting and sectors set to benefit from spending shifts.
Market backdrop
U.S. yields jumped last week but U.S. stocks remain near all-time highs. The strong March U.S. jobs data supports our view of only two or three cuts this year.
Week ahead
We eye this week’s U.S. CPI. We see goods inflation pulling down overall inflation while services remain sticky. We watch for how soon the ECB will cut rates.
Working-age populations are shrinking across developed markets (DMs) but still growing in emerging markets (EMs). That hurts DM economic growth and favors EM growth – a divergence that is broadly reflected in asset prices, in our view. Yet we think the demographic mega force is also driving structural shifts in sectors – like healthcare and real estate – that are not priced in. We get selective, seeking EMs capitalizing on their younger populations and DMs better adapting to aging.
Mind the DM-EM gap
Change in domestic working-age population, next 20 years vs. past 20 years
Forward-looking estimates may not come to pass. Source: BlackRock Investment Institute, United Nations, with data from Haver Analytics, April 2024. Notes: The chart shows the percentage change in the domestic working-age population (aged 15-64), 2003-2023 vs. 2024-2044. The domestic working-age population is calculated by subtracting the UN’s migration projections from the UN’s population projections that include migration, assuming the overall age structure does not change.
Life expectancy is rising and birth rates are falling across the globe. In many DMs, that means the working-age population is set to shrink over the next 20 years. See the chart. That has vast macro implications. Fewer workers means slower growth. It is also inflationary, in our view. Retirees stop producing economic output, but do not typically spend less, historical data show. Plus, governments are likely to spend more on healthcare and pensions. The resulting inflationary pressure is one reason why we expect central bank policy rates to stay above pre-pandemic levels. Aging-related spending also threatens to push up government debt, with global public debt having already tripled since the mid-1970s to 92% of global GDP in 2022. And that debt is likely to be subject to higher interest costs. The economic picture looks quite different in EMs, like India, where the working-age population is still growing.
We think the broad growth impact of diverging population trends is well understood by markets. Yet as we outline in our new research paper, countries can respond differently – creating an uncertain outlook. We believe this will affect asset prices as markets adjust to how countries adapt. Within EMs, we seek those more likely to capitalize on their demographic advantage by bringing more working-age people into the workforce or that look to ramp up investment in productive capital, like public infrastructure. Growing populations consume more energy, so we expect rising spending on energy infrastructure in places like India and Indonesia. We think higher returns are likely in EMs with stronger growth and greater investment demand.
Seeking winners across countries and sectors
In DMs, we look for those that could better adapt and outperform the growth outlook markets have priced. DMs can mitigate the hit to growth by finding more workers – from other countries, or among women and other groups underrepresented in the workforce. Japan has somewhat lessened the impact of aging by substantially raising female participation. The recent immigration surge in the U.S., UK and Canada is boosting their workforces, as reflected in last week’s bumper U.S. jobs report, but it would have to persist for years to fully offset working-age population declines – unlikely, in our view. We’re monitoring how much artificial intelligence (AI) can boost the productivity of a smaller workforce.
Even less understood by markets, we believe, is the sectoral impact of mega forces – or big structural shifts driving returns. Older populations spend differently than younger ones. For example, healthcare spending rises with age. Real estate demand could change since older people typically move less frequently. Yet research shows even predictable spending shifts are not priced in until they hit. That was true for healthcare in Japan, where valuations have risen broadly in lockstep with the well-signposted growth of the country’s retired population. That appears true now in the U.S. and Europe – one reason we like healthcare in both regions. We also think AI names will benefit from investment in automation to boost worker productivity.
Our bottom line
In EM, we favor countries best able to capitalize on their demographic advantage. We prefer DMs whose responses to aging could be underappreciated. We target sectors and firms poised to benefit from new spending patterns.
Market backdrop
The S&P 500 dipped 1% last week but was near a record high and 10-year Treasury yields jumped to their highs of the year near 4.40%. The March U.S. payrolls data showed job gains easily beating expectations. We think this reflects an unexpected surge in immigration helping expand the workforce. Markets are pricing in between two and three quarter-point Fed rate cuts this year. We think June is no longer a given for the Fed to start cutting rates – but see rate cuts coming as inflation falls.
U.S. inflation data is in focus this week. We expect inflation to fall toward the Federal Reserve’s 2% policy target this year as goods prices keep falling from pandemic highs. Yet we still see inflation on a rollercoaster back up in 2025, led by stubborn services inflation. We think core inflation will settle closer to 3% – higher than pre-pandemic levels. We watch for the European Central Bank (ECB) to give more clues on the timing of rate cuts at next week’s policy meeting.
Week ahead
April 10
U.S. CPI
April 11
China CPI and PPI; European Central Bank policy decision
April 12
University of Michigan consumer sentiment survey; China trade data; UK GDP
April 10-17
China total social financing
Source
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of April 4, 2024. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bank of America Merrill Lynch Global High Yield Index, J.P. Morgan EMBI Index, Bank of America Merrill Lynch Global Broad Corporate Index and MSCI USA Index.
© 2024 BlackRock, Inc. or its affiliates. All rights reserved.
General disclosure: This material is intended for information purposes only, and does not constitute investment advice, a recommendation or an offer or solicitation to purchase or sell any securities to any person in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The opinions expressed are as of Apr. 8, 2024, and are subject to change without notice. Reliance upon information in this material is at the sole discretion of the reader. Investing involves risks. This information is not intended to be complete or exhaustive and no representations or warranties, either express or implied, are made regarding the accuracy or completeness of the information contained herein. This material may contain estimates and forward-looking statements, which may include forecasts and do not represent a guarantee of future performance.
In the U.S. and Canada, this material is intended for public distribution. In EMEA, in the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. In the European Economic Area (EEA): this is Issued by BlackRock (Netherlands) B.V. is authorised and regulated by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded. In Italy, for information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in Italian. In Switzerland, for qualified investors in Switzerland: This document is marketing material. Until 31 December 2021, this document shall be exclusively made available to, and directed at, qualified investors as defined in the Swiss Collective Investment Schemes Act of 23 June 2006 (“CISA”), as amended. From 1 January 2022, this document shall be exclusively made available to, and directed at, qualified investors as defined in Article 10 (3) of the CISA of 23 June 2006, as amended, at the exclusion of qualified investors with an opting-out pursuant to Art. 5 (1) of the Swiss Federal Act on Financial Services ("FinSA"). For information on art. 8 / 9 Financial Services Act (FinSA) and on your client segmentation under art. 4 FinSA, please see the following website: www.blackrock.com/finsa For investors in Israel: BlackRock Investment Management (UK) Limited is not licensed under Israel’s Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995 (the “Advice Law”), nor does it carry insurance thereunder. In South Africa, please be advised that BlackRock Investment Management (UK) Limited is an authorized financial services provider with the South African Financial Services Board, FSP No. 43288. In the DIFC this material can be distributed in and from the Dubai International Financial Centre (DIFC) by BlackRock Advisors (UK) Limited — Dubai Branch which is regulated by the Dubai Financial Services Authority (DFSA). This material is only directed at 'Professional Clients’ and no other person should rely upon the information contained within it. Blackrock Advisors (UK) Limited - Dubai Branch is a DIFC Foreign Recognised Company registered with the DIFC Registrar of Companies (DIFC Registered Number 546), with its office at Unit 06/07, Level 1, Al Fattan Currency House, DIFC, PO Box 506661, Dubai, UAE, and is regulated by the DFSA to engage in the regulated activities of ‘Advising on Financial Products’ and ‘Arranging Deals in Investments’ in or from the DIFC, both of which are limited to units in a collective investment fund (DFSA Reference Number F000738). In the Kingdom of Saudi Arabia, issued in the Kingdom of Saudi Arabia (KSA) by BlackRock Saudi Arabia (BSA), authorised and regulated by the Capital Market Authority (CMA), License No. 18-192-30. Registered under the laws of KSA. Registered office: 29th floor, Olaya Towers – Tower B, 3074 Prince Mohammed bin Abdulaziz St., Olaya District, Riyadh 12213 – 8022, KSA, Tel: +966 11 838 3600. The information contained within is intended strictly for Sophisticated Investors as defined in the CMA Implementing Regulations. Neither the CMA or any other authority or regulator located in KSA has approved this information. In the United Arab Emirates this material is only intended for -natural Qualified Investor as defined by the Securities and Commodities Authority (SCA) Chairman Decision No. 3/R.M. of 2017 concerning Promoting and Introducing Regulations. Neither the DFSA or any other authority or regulator located in the GCC or MENA region has approved this information. In the State of Kuwait, those who meet the description of a Professional Client as defined under the Kuwait Capital Markets Law and its Executive Bylaws. In the Sultanate of Oman, to sophisticated institutions who have experience in investing in local and international securities, are financially solvent and have knowledge of the risks associated with investing in securities. In Qatar, for distribution with pre-selected institutional investors or high net worth investors. In the Kingdom of Bahrain, to Central Bank of Bahrain (CBB) Category 1 or Category 2 licensed investment firms, CBB licensed banks or those who would meet the description of an Expert Investor or Accredited Investors as defined in the CBB Rulebook. The information contained in this document, does not constitute and should not be construed as an offer of, invitation, inducement or proposal to make an offer for, recommendation to apply for or an opinion or guidance on a financial product, service and/or strategy. In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong. In South Korea, this material is for distribution to the Qualified Professional Investors (as defined in the Financial Investment Services and Capital Market Act and its sub-regulations). In Taiwan, independently operated by BlackRock Investment Management (Taiwan) Limited. Address: 28F., No. 100, Songren Rd., Xinyi Dist., Taipei City 110, Taiwan. Tel: (02)23261600. In Japan, this is issued by BlackRock Japan. Co., Ltd. (Financial Instruments Business Operator: The Kanto Regional Financial Bureau. License No375, Association Memberships: Japan Investment Advisers Association, the Investment Trusts Association, Japan, Japan Securities Dealers Association, Type II Financial Instruments Firms Association.) For Professional Investors only (Professional Investor is defined in Financial Instruments and Exchange Act). In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). The material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. In New Zealand, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230 523 (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the New Zealand Financial Advisers Act 2008. In China, this material may not be distributed to individuals resident in the People’s Republic of China (“PRC”, for such purposes, excluding Hong Kong, Macau and Taiwan) or entities registered in the PRC unless such parties have received all the required PRC government approvals to participate in any investment or receive any investment advisory or investment management services. For Other APAC Countries, this material is issued for Institutional Investors only (or professional/sophisticated /qualified investors, as such term may apply in local jurisdictions). In Latin America, no securities regulator within Latin America has confirmed the accuracy of any information contained herein. The provision of investment management and investment advisory services is a regulated activity in Mexico thus is subject to strict rules. For more information on the Investment Advisory Services offered by BlackRock Mexico please refer to the Investment Services Guide available at www.blackrock.com/mx
Not FDIC Insured | May Lose Value | No Bank Guarantee
©2024 BlackRock, Inc. All Rights Reserved. BLACKROCK is a trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.
BIIM0424U/M-3495177
Weekly Investment Commentary: Munis offer yield relief from inflation’s heat
U.S. yields began the year at their highest starting level since 2011, and they have since risen further across the Treasury and municipal curves.
Global Weekly Commentary: Higher bar for U.S. earnings to deliver
We saw 2024 as a year of two stories. First, cooling inflation and solid corporate earnings would support upbeat risk appetite.
Global Markets Weekly Update: April 19, 2024
Review the performance of global stock and bond markets over the past week, along with relevant insights from T. Rowe Price economists and investment professionals.