The demographic tortoise has its skates on

Demographic change is perceived to be slow moving and therefore irrelevant to investment decision making, particularly in a world grappling with faster moving geopolitical tensions, changing governments and technological advancements. However, many of the world’s major economies are experiencing the most rapid demographic changes since the second world war, with general and working populations – and birth rates – falling at a record pace1 .

Changing demographics will alter consumption patterns and affect the sustainability of the revenues and cashflows of firms in which we invest. It will lead to profound changes to the job market – creating labour shortages, skills gaps and reduced innovation. This will impact businesses growth trajectories and their competitive positioning. It will also challenge government policy by shrinking tax bases and pressurising budgets, due to increased expenditure on pensions and healthcare.

Population changes can also affect economic growth, unemployment levels, the equilibrium interest rate, the housing market and the price of other financial assets. Collectively, these could have consequences for the sovereign debt market.

At the macro level, demographic change will refigure the global economy and the international balance of power, much as China and India’s population growth has done over the past few decades. This could ignite both geopolitical and intergenerational issues.

However, companies which manage to adapt their product profiles to ageing demographics or growing middle classes in emerging markets could profit from these changes. Firms who can support infrastructure development in emerging markets or offer tools and technology to improve productivity within ageing populations will also have an advantage.

All of which has the potential to have a material impact on investments we make at Columbia Threadneedle Investments.