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RUSSELL INVESTMENTS
OPINION
Market disruptors
By: Rachel Carroll, CFA, Managing Director, Consulting
At our recent Summit conference, I had the opportunity to
host a manager panel where we discussed how changing
demographics were likely to alter the investment landscape in
the future. Through this session, which explored the impacts
on both developed and emerging markets, one key idea stood
out to me: Changing demographics will drive the need for
adaptation at both the company and the country level in the
coming decades.
Developed markets are facing a slowing of population growth, some to the point where
birth rates are now below the replacement rate for the population. This translates to both a
shrinking and aging workforce.
Emerging markets are becoming an increasingly large proportion of the world’s
population, and of the global GDP. These markets are seeing the urbanization of their
economies as workers transition from the fields to the factories.
What do these changes mean? For developed markets, this could mean that companies
may need to transform their processes to accommodate an older workforce. Patrick Kaser
from Brandywine Partners told an interesting anecdote about a BMW factory in Southern
Bavaria that has created a factory that only uses workers over the age of 50. The factory
has incorporated new technology to make an efficient and productive factory line that
capitalizes on the age and experience of its employees.
For emerging markets, there is still the benefit of a young and growing labor force, but the
door opens for labor arbitrage opportunities. The urbanization of cities is an important
driver. Workers are moving from performing agricultural jobs in outlying areas into
manufacturing jobs near the city centers. These countries are adapting and providing
fertile ground for companies to participate in the shifting economy.
What kinds of opportunities do these adaptations present? Within developed markets, it
is obvious that healthcare becomes increasingly important as a population ages. Services
and experiences, such as travel, are also attractive in populations where there are many
two-income households and higher levels of disposable income. For emerging markets,
the adaptations lead to opportunities in areas such as real estate and consumer stocks as
new urban centers are developed and a newly non-agrarian workforce is setting up more
household units than before.
For both developed and emerging countries, one area that was likely to be the beneficiary
of adaptation was universal: technology. As James Johnstone from RWC Partners phrased
it, “Technology is the heart of what drives the world.”
Rachel Carroll
It is not the
strongest of
the species that
survives, nor the
most intelligent
that survives.
It is the one that
is most adaptable
to change.
Charles Darwin
(attributed)
STRATEGY
TIMING IMPLEMENTATION