Here’s where BlackRock sees investment opportunities as demographics shift and the population ages

Published Wed, Apr 10 202411:34 AM EDTUpdated Wed, Apr 10 20243:07 PM EDT

Populations in developed markets around the world are getting older, bringing certain opportunities for investors, according to BlackRock. The same goes for markets that have growing populations, leading to what the firm is calling demographic divergence. It is one of the five so-called mega-forces affecting investing that BlackRock is tracking. While the trends may seem predictable, they are slow-moving, and investors aren't necessarily hopping on them just yet, said Wei Li, BlackRock's global chief investment strategist. "Even though everybody may think that they have demographic trends figured out, markets do not move until the trends are obvious in the economy," she said. "There are some really exciting opportunities here." Not only are people living longer , but there have also been fewer births in recent years. Global life expectancy was 73.3 years in 2019, up from 66.8 years in 2000, according to the World Health Organization . Meanwhile, fertility has fallen from an average of 5 births per woman worldwide in 1950 to 2.3 births per woman in 2021, according to the United Nations . Of course, there will be an impact to those economies as the number of people of working age — between 15 and 64 — dwindles, BlackRock said in a recent report. The firm analyzed data from the United Nations and Haver Analytics. The working age population is expected to continue shrinking over the next 20 years. That said, there are variables, such as the number of migrants, women and those over 60 entering the workforce, that can affect how much aging impacts economic growth, Li explained. With that in mind, BlackRock looked at which sectors and countries can benefit from demographic divergence. The key is being selective and thinking long term, Li noted. Aging population plays In developed markets with aging populations , health-care needs will rise, creating an investment opportunity in the sector, Li said. Again, while it is predictable, it is still underappreciated, she pointed out. "The relative outperformance of the health-care sector is to be expected in the context of an aging population," Li said. "But outperformance is realizing slowly as economies age, rather than an instant repricing of a very predictable trend." For instance, in Japan, the growth in its retired population was well documented years in advance. However, the value of its health-care stocks — relative to the broader market — has risen in step with the growth of its retired population, the report pointed out. The firm sees the entire sector benefiting. "It's not just about biotech and drug discovery and innovation, but even just maintenance," Li said. One way investors can get exposure to the sector is through health-care exchange-traded funds. The largest is the Health Care Select Sector SPDR Fund (XLV) , which has a total return of 5.43% this year. It tracks the health-care sector of the S & P 500 . Investors can get global exposure through funds like the iShares Global Healthcare ETF (IXJ) . Artificial intelligence also plays a big role. As countries look to boost productivity amid a shrinking workforce, they'll turn to new technologies, Li said. What it boils down to is how much AI can come to the rescue, she said. Already in the U.S. the market is hoping for and somewhat expecting an economy-wide productivity boost thanks to AI, she said. "An economy-wide, sustained productivity boom is very hard to achieve, especially in the context of the supply constraint coming from, among other things, demographic shortage, aging population," Li said. "This is where AI comes in." Growing population opportunities Then there are countries that are expected to grow their population, such as Indonesia, Mexico, Saudi Arabia, South Africa and India. India stands out due its size and the fact that its working age population is expected to increase by 120 million over the next 20 years, Li said, citing World Bank data. In comparison, China is aging and is projected to see a decline of over 140 million people over the same period, she said. "These are meaningful, meaningful numbers," she said. "Because markets can only focus on one thing at a time, it's not quite grasping the magnitude right now." India has also seen a boost in its female workforce, but it still has a lot of room to move higher. "If India is able to bring more people into the working population, especially women, that will significantly boost its growth trajectory," she said. With that comes more investment into productive capital, like machinery, transportation infrastructure, housing, schools and hospitals, Li pointed out. People will move from rural areas into urban ones. The energy sector will benefit as demand increases, she said. U.S. investors can typically get access to foreign companies through mutual funds or ETFs, as well as American depository receipts, or ADRs. Some may have U.S.-listed stocks, as well. Here are some ETFs that are focused on India. Correction: This article has been updated to reflect that global life expectancy in 2019 was 73.3 years. An earlier version misstated the figure.