Baby Bust: Will Falling Global Birth Rates Drive Markets Lower?

Recent global birth rate data, if extrapolated to the end of this century, suggest that the number of people on the planet celebrating the turn of 2100 could be half of that which saw in the millennium.

Data collected by HSBC Global Research show that the global birth rate has fallen by 4.5% in 2023. South Korea’s rate has fallen by the most, down 8.5%, while Germany’s was down 6%. In the U.S. the birth rate is still growing, but at a much slower rate since the global financial crisis in 2008.

“The aftermath of the COVID-19 pandemic was expected to see a rebound in birth rates across the world – but the opposite is happening,” said James Pomeroy, global economist at HSBC Global Research.

Social And Economic Impact On Young People

The reasons appear to be a mixture of many reasons, both economic and social. Young people struggle to afford homes in which to raise families, as well as the broader costs of bringing up children. Meanwhile, many younger people are prioritizing their careers or desire to travel ahead of starting families.

Much of this means that those who do plan families are having children at a much later stage in their lives than would have been the norm several decades ago. Thus, many are limiting their families to just one child.

“As things stand, we're on a path of the world's population to start shrinking before 2040, with developed markets already on a path to dramatic population decline over the course of the next few decades,” said Pomeroy.

Also Read: As China’s Population Declines In 2023, Will Aging Demographics Boost Healthcare Stocks?

Good News, And Bad News

For many, this would be good news. Fewer people on the planet take pressure off the earth’s resources. But less demand for damaging fossil fuels, would see oil prices turn materially lower.

And it’s been demand economics that have driven oil prices for the past six months or so. The price of the United States Oil Fund USO, an exchange-traded fund based on the price of light-sweet crude, has fallen 17% since it last peaked in September.

And this has come amid numerous supply threats including wars and shipping attacks in and around the oil-producing areas of the Middle East.

Falling birth rates present policy and lawmakers with difficult economic decisions to make. How do governments deal with and pay for an aging population? As more elderly citizens leave the workforce and fewer young ones join the number of taxpayers declines. Do governments raise taxes?

Financial Services, Healthcare Come Into Play

Middle-aged people now, realize that they’re going to have to be more financially independent in another 20 years. Thus, it’s likely to be a good period for financial services groups — insurers, investment banks, fund managers, etc.

It’s been a pretty good period to be among these sectors during the past four months. The iShares U.S. Financial Services ETF ARCA: IYG), which includes stocks such as Citigroup C, JPMorgan JPM and Berkshire Hathaway BRKA, is up 23% since October, outperforming the broad SPDR S&P 500 SPY which is up 17.9%.

An aging population brings with it an increasing healthcare burden. This could go one of two ways for the healthcare providers.

If governments are unwilling to raise taxation, then they’ll have to make spending cuts — the heaviest likely coming in healthcare and social spending. At the same time, citizens are going to have to make greater provisions for their old age now.

But an aging population would appear to be a growth opportunity for the healthcare sector. The Health Care Select Sector SPDR Fund XLV, which includes drugmakers, biopharma and healthcare providers, is up 13.5% since October.

AI For Tech-Savvy Pensioners

One thing can almost be certain. The mass of baby boomers that are in or entering retirement now, will be followed by wave upon wave of tech-savvy pensioners. Middle-aged people who, like me, are reading daily headlines about the growth of artificial intelligence now, are wondering how AI will benefit us in our old age?

Will we have chatbots to stop us from getting lonely? Devices around our homes that make living at home for longer more plausible?

All these things are likely, and they’re being invested in massively right now. From the start-ups that create the AI software to the established chipmakers that can produce, at scale, the masses of semiconductors that will be needed for the computational power — the market is already taking off in a big way.

Last week was another stunner for semiconductor stocks, with AMD AMD up 19% over the week, Applied Materials AMAT up 11% and Broadcom AVGO up 9.4%.

Now Read: AI Stocks Dominate In January: Nvidia, Juniper, Palo Alto Lead The Charge

Image: Pixabay