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How China’s changing demographics reshapes the investment landscape? Morningstar Institutional Conference Equities Research Session Recap

The demographic transition in China is expected to bring about significant changes to its economic structure in the coming decades.

The demographic transition in China is expected to bring about significant changes to its economic structure in the coming decades. Morningstar’s senior equity analyst Chokwai Lee opened the session with an overview of Morningstar’s demographics study, followed by Mandy Chan, Head of China and Hong Kong Equities, HSBC Global Asset Management, presenting her perspectives as a portfolio manager.

The session concluded with a panel discussion between Chan and Morningstar’s senior equity analyst and team lead Dan Baker on how these demographic trends can translate into investment opportunities in China.

The panel moderator, Michael Holt, Morningstar’s head of global equity research wrapped up the discussion in the following video.

 

Michael Holt: Today we are joined by Chokwai Lee of our Morningstar Singapore office, Dan Baker of our Hong Kong office, and Mandy Chan from HSBC Global Asset Management. The focus of the panel was on changing demographics in China and what the investment implications are. Three big factors were in play during the panel discussion.

First was the falling fertility rate, lower birth rate and how that changes the population. Second was the changing composition of the population, big growth in the amount of seniors, relative to the amount of people in the work force, the support ration is changing pretty dramatically. Third was the urbanization, the slow down in migration from farms to the cities.

So the big takeaways is these will be headwinds for GDP. But what’s really interesting is in the shifting of composition of GDP, where you have got big headwinds on the investment side but big tailwind on the consumption side. You got lower labor force driving higher wages and you got seniors spending more and saving less.

So in terms of investing ideas, there were a few areas that the panel focused on. First is broad consensus that this is good for some of the firms in technology and gaming business. So Tencent was mentioned a couple times. Second, we had negative implications for material sector but it wasn’t universal. So there is headwinds for iron and aluminum but some more specific areas like uranium and chemicals create some opportunities for investors. And finally in the property market, there were different views in the short term versus the long run. Agreement that in the long run, the demographics are challenging the amount of demand, but, pretty much a consensus that supply would adjust so there is no immediate collapse in property prices.   

Watch other recap videos here.

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