Some time over the next few weeks, China could reveal that its long-dreaded inflection point — where the world’s most populous nation begins to shrink — has either arrived or is extremely close. Demographics may be a slowly painted picture of a future that has already happened, but moments like this deliver the instant psychological jolt of era change. In this case, say fund managers, the shift may also mark the emergence of mass loneliness as its own distinctive investment theme, with Asia at its forefront.
When Beijing declares the official number of births in 2022, some expect the tally to show a seventh straight year of decline and a record low of about 10mn. That figure, according to reports citing the forecasts of independent demographer He Yafu, will probably come in below the total number of deaths, creating a long-anticipated crossover that may have been expedited by Covid-19.
Whenever it arrives, many of the narratives around this extraordinary moment — the challenges of a massive ageing population, contracting labour force and burdensome healthcare implications being just a few — are already central concerns in Beijing. But some more global ones, including India’s approach to becoming the world’s most populous country and whether China’s economy is actually still on track to overtake America’s, will also suddenly feel more acute.
Investors preoccupied with these questions will necessarily make comparisons with Japan, which, with assistance from South Korea and Taiwan, has largely written Asia’s textbook on population shrinkage and ageing. Their experiences can provide useful warnings across the board, not just on how governments and companies must adjust to the most visibly critical challenges of ageing, but also how they respond as loneliness seeps into calculations as both a social epidemic and a permanent macroeconomic force.
Formally crossing this demographic line will also remind investors how seriously China will suffer mass loneliness — a mental and physically sapping fate for the vast cohort of single, childless citizens, a rising number of divorced people and a growing population of rural elderly abandoned by relatives who have migrated to cities. Official forecasts in 2021 suggested that the number of people living alone in China would reach 92mn in 2022. In Japan, which in 2021 put a state minister in charge of dealing with loneliness, a third of people over 60 have no close friends outside their family.
Some fund managers say they have begun applying deeper analysis to Asia’s expanding “loneliness economy” — consumer spending patterns of the solo life that fall outside the more general analysis directed towards the economics of family shrinkage, lower household creation and ageing.
What kind of stocks might feature most prominently in such upcoming investment portfolios? Video games, streaming services, virtual reality and certain versions of the metaverse are obvious candidates. Innovation around monetising virtual or real communities would also feature. But there is ample room, said one Hong Kong investor, for more creative thinking of how the loneliness epidemic affects property development, food consumption and travel.
Other growth areas will surely include pets, robotic and otherwise. The ownership, feeding, insuring, clothing and treatment of animals as companions for the lonely, say fund managers, will be prominent. In a 2021 note, Goldman Sachs laid out a forecast of 19 per cent annual compound growth opportunities in China’s $30bn pet market.
But any investment strategy, suggests a separate analysis by Citigroup, would also need to embrace robots and their role in the loneliness epidemic. Robotic cats and seals are increasingly regular inhabitants of elderly care homes in Japan. As artificial intelligence improves, a higher premium will be placed on robots that can engage in plausibly human small talk, provide help in contacting human loved ones and persuasively cajole people into taking exercise.
The risk, though, is that while there may be opportunities out there for investors, rising loneliness also holds far greater threats. There is the question of how regularly Keynes’s animal spirits — those elusive forces on which buoyant economies and markets depend — make an appearance once a nation knows it is getting smaller. For more than 30 years, since the bursting of its stock and property bubble, Japan has repeatedly failed to entice these back into any sustained cheerleading role. If that, as some suspect, is closely linked to its passing of the population inflection point and loneliness epidemic, then it may soon be joined by China — a companionship that nobody should wish for.
