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N.E. Asia Going Down for the Demographic Count

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All good things must come to an end, as the FT outlines in this article. And so too will the population growth of N.E. Asia. Japan is already in decline. The Japanese headcount is expected to shrink from 130mm to 100mm by 2050, with all the commensurate externalities - higher dependence ratio, so lower consumer spending, more spending on healthcare, etc.

China and Hong Kong are set to "hit the wall" in 2017. Taiwan in Korea 2016, Singapore 2018. Fertility rates in Shanghai are already estimated to be 0.74. Taiwan's fertility rate is the lowest of any country measured now, at 1.1, and this in a country with no "one-child" policy. In addition, the preference for boys in these societies means that the actual fertility rates will decline at an even more drastic rate. 

From a street-level view in Taiwan, this phenomena is manifesting itself in a number of ways. Cram schools - traditionally a safe haven business - are declining, as parents have fewer children. OB-Gyn practices are folding at the rate of 10-15%/year. Taipei schools - normally the most competitive on the island - are all below capacity. Only 3 primary schools in the city are full. A friend sends their son to a local kindergarten. Of the 28 students, 20 are boys. 

Whatever the rate of ageing is in Japan, it will be that much more pronounced in China/Taiwan/Korea/Hong Kong/Singapore. Modern immigration policies will help Hong Kong and Singapore, but the endemic ageing of the workforce will present unrelenting strains on public services. 

How to play this? The first investment to avoid is property. Prices across the region (except Japan) are still in orbit. With the demographic headwinds facing the region, and immigration policies lacking, it is hard to see where the incremental buyers will be 10 years from now. Healthcare services will boom. Bumrungrad Hospital BH:TB in Thailand - a privately run top notch medical facility catering to global clients - will continue to expand. In Singapore,  Parkway, Raffles Medical and Pacific Healthcare are all expensive, but for a reason.

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Guest Wednesday, 05 August 2020