The greying population will be looking to preserve their wealth, writes Jiyeun Lee.
WITH Asia's elderly population poised to double within four decades, more money is being ploughed into preserving wealth than enhancing growth, driving up demand for the region's bonds that are beating returns on stocks.
The number of Asians 60 or older will exceed 1.25 billion, or 24 per cent of the population in 2050 from 10 per cent in 2011, according to data compiled by the United Nations. That helps explain the surge in pension fund assets and shows why the region's emerging-market debt returned 63 per cent in the five years through 2011, according to a JPMorgan Chase & Co index. The MSCI Asia-Pacific Index of shares, excluding Japan, gained 17 per cent in that time.
While the bond rally drove down sovereign yields, it is also forcing insurers to seek higher returns in riskier debt across Asia, according to Cathay Life Insurance Co, Taiwan's largest, and Singapore's NTUC Income Co-operative. The elderly typically reduce risk to retirement savings by limiting holdings of equities needed to help fund Asia's economic growth.
"The greying population will matter," said Thiam Wooi Lye, a senior manager who helps manage $US20 billion ($A18.5 billion) at NTUC, Singapore's third-largest insurer. "The returns on equity won't compensate for the liabilities from pensioners. They will increase allocations to bonds."
Pension-fund assets in South Korea will almost triple to 1919 trillion won ($US1.7 trillion) by 2020 from 2011's 746 trillion won, says Son Seong Dong, the head of a Seoul-based pension research body established by Mirae Asset Financial Group, which controls South Korea's biggest mutual fund with $US55 billion in assets.
Investors over 50 prefer bonds' fixed payments, as "prudence trumps desire", Singapore-based Volatility Research & Trading wrote in a January 15 report. In South Korea, there are now 1.2 people aged over 50 for every person between 35 and 49, the part of the population that favours stocks, the company said. The ratio will climb to 3.6 by 2046.
Taiwan will have 413 people aged over 65 for every 100 under 15 by 2050, compared with Japan's 339, according to the Council for Economic Planning and Development in Taipei. About 38 per cent of Singapore's population will be older than 60 by 2050, up from 12 per cent in 2005, UN data shows. After expanding 2.5 per cent a year for the past three decades, China's working-age population has stopped growing and will contract 1 per cent a year by the mid-2020s, according to the Centre for Strategic and International Studies in Washington.
Japan's shrinking labour force has triggered two decades of slowing growth and falling stock prices. While investors lost money in equities and gained with government bonds, returns shrank as rates fell.
Taiwan's expansion may slow to 3.5 per cent per year this decade, from 5.1 per cent in the 20 years through 2010, according to Singapore-based DBS Group Holdings. Developing Asian nations will see growth of 7.8 per cent this year after 8.2 per cent in 2011 and 9.7 per cent in 2010, the World Bank forecast last month.
Asia isn't alone. Labour pools are also poised to shrink in Brazil, Russia, India and China causing global growth to peak at about 4.3 per cent this decade and fall to 3.9 per cent in the 2020s, according to Goldman Sachs Group Inc.
Increased pension assets will make the region's bond markets more actively traded and so less risky, according to Iwan Azis, the Manila-based head of Office of Regional Economic Integration at Asian Development Bank. "The demographic change will add depth and liquidity to Asian bond markets," increasing investment in corporate bonds, he said.