There is definite proof that sustainability-focused funds are outperforming their conventional counterparts. But some experts believe the traditional explanations for this are wrong.
Chris Lobello, head of Hong Kong research at CLSA, puts forward a different way of using demographics. He says studying the changes in demographics can lead to the predictability of stock market movements in the long-term. He even has a fancy name for this û the MY ratio, or the proportion of middle-aged people (those in their 40s) to the young people (those in their 20s). Simply put, the MY ratio shows the segment of the population that is likely to invest more heavily in the stock market.
AsiaÆs demographics are shifting towards the middle-aged investors, who will likely drive the stock markets higher, says Lobello, who calls himself a newly minted member of the M category.
ôWhen you are 20 and immortal, your money goes to wine, flashy gear and song,ö he says. ôWhen you hit 40 and you worry about running out of wine, flashy gear and song at age 60, you start saving and investing.ö
Lobello notes that significant gains in stock markets worldwide have not typically come from improvements in fundamentals or corporate earnings, but from the rise in share price valuations that are influenced by both fundamentals and other factors such as market sentiment or demographics.
ôThe eighties in the US is a good example. The eighties were fantastic for the US because valuations were rising,ö he says, noting that the aging baby-boomer generation was a major driver of the US stock marketÆs rise in the 1980s to 1990s.
Using MY ratios, Lobello predicts that share prices in Asia will generally be rising in the next five to 15 years, while share prices in the US will fall, suggesting that this is another reason global and US fund managers should allocate more to this region in the coming years.
ôDemographics show Asia is beginning the next leg of a steady uptrend as the US is coming off its peak to fall back to a long period of sideways markets,ö he says.
Within Asia, stock markets in South Korea and Taiwan will likely benefit the most from an aging population, Lobello says. Retirement concern is the single most citied driver of increased savings in South Korea, he says. The latest survey of the Korean Chamber of Commerce in 2006 shows that a greater percentage of the workforce are preparing for their retirement compared to the previous years, especially among the people in their 40s.
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