Too risky to ignore? Morgan Stanley picks 5 stocks to play an 'underappreciated' investment trend

Published Wed, Jul 21 20217:30 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Analysts at Morgan Stanley have identified stocks that are set to benefit from rapidly changing demographic trends, which it said are "widely underappreciated" by investors. "The opportunities are myriad for investors; so too are the near-term risks of inaction," the bank said. In a note dated July 13, the bank identified three demographic trends that are moving at a "startling pace" to create an ageing population, and said the trends provide a "myriad" of opportunities for investors. "Societies, governments, corporates and investors face faster changes in demographics than ever and need to adapt – quickly," the analysts wrote. "The speed of change is unprecedented and out pacing UN projections," they added. Morgan Stanley's preferred way of playing the theme is via property, health care and medical technology stocks. A fall in fertility rates Morgan Stanley suggested that society is now entering a "third epoch of fertility," where education and better opportunities for women have reduced the birth rate, while at the other end of the scale, poorer health, such as obesity and bad diet, has contributed to reduced fertility. "The US census just recorded America's second slowest population growth since it began counting in 1790," the analysts said, adding that in China, millennials are reluctant to have more than two children even though the country is now allowing couples to have three. Climate change is also a factor, with information from Google as well as other data sources suggesting younger people are less willing to have children due to worries over their contribution to emissions. The coronavirus contribution A "Covid Curveball" has created a baby bust , rather than a boom, as some commentators expected, the bank said. "Prior financial crises suggest the suppressant on birth rates can last for 3-4 years. Moreover, using the 1917-20 Spanish Flu example as a loose proxy, the recovery in the birth rate in 2021 is unlikely to be linear. In 1917-20, with each new wave of virus came a renewed downturn in subsequent births," the analysts wrote. Google searches for "Egg Freezing" have reached new highs, Morgan Stanley reported. "Covid has created profound and unintended consequences that may last for a generation. Investors, in our view, need to be conscious of the flow-through effects of what this can mean for long-term supply, demand and growth across the economy." An ageing population "While we believe Europe is entering a comparatively more attractive demographic era ahead, investors must nonetheless confront the realities of the ageing population in absolute terms," Morgan Stanley said. In the U.K., for example, the number of people aged over 100 is expected to grow at a compound rate of 6% a year to reach 600,000 people by 2080. "To contextualise this, there are currently 730,000 retirement home beds in the UK (according to the Elderly Accommodation Council) - to cater for all age groups," the analysts wrote. Stock picks Belgian real estate firm Cofinimmo , with a portfolio valued at around 5 billion euros ($5.91 billion) is an opportunity for investors as it has been "rotating away from offices to healthcare over the last 15 years," according to the bank, which also picked real estate investment trust Aedificia , with its care homes across northern Europe. In health care, Morgan Stanley likes Nestle , with the company's health science arm identifying "an increasing burden on society from obesity and chronic diseases," and subsequent production of food supplements to help issues such as fatigue and loss of muscle mass. The bank's medical technology picks are hearing aid manufacturer GN Store Nord and Spanish blood plasma firm Grifols , which "has been investing in Alzheimer's treatments and trials for nearly two decades," the bank wrote.

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