Demographics may hit S'pore's equity valuations

Published September 12, 2011

Population segment most likely to invest in equities is on the decline: HSBC report

By KELLY TAY

SINGAPORE'S market valuation may be held down over the coming years, simply because the proportion of its middle-aged share of the population has already peaked in 2005.

And as people between the ages of 35 and 54 are the most likely to invest in equities, a shrinking of this segment will lead to a corresponding drop in equity demand and valuations.

In fact, Singapore's falling proportion of middle-aged people means that it has the third-least favourable demographics to support higher equity valuations, behind Hong Kong and South Korea, says HSBC Global Research's latest global equity strategy report.

The HSBC report, which considers the relationship between a country's demographics and equity market valuations, indicated that Egypt, South Africa and the Philippines have the most supportive demographics, with their middle-aged population segments projected to peak in 2035, 2050 and 2050, respectively.

With the exception of China and Korea, most emerging markets share similar supportive demographics since their middle-aged populations will continue to increase over the next 20 to 30 years.


Peripheral Europe has the most positive demographics among the developed markets.

This will mean an overall rise in demand for equities, which will exert an upward pressure on prices - therefore driving up equity valuations.

In contrast, in most of the developed world, the middle-aged share of the population has already peaked.

Among these countries, however, demographics are changing at different rates, leading to varying degrees of impact.

With a slower pace of expected decline, for example, any effect on equity demand, while negative, will be weaker.

The report also singled out four factors that may offset the effects of a country's unfavourable demographics: changing life expectancy, immigration, foreign investors and current valuations.

In particular, it noted that valuations in developed markets are already at 'very depressed levels' - giving less scope for them to fall further.

While these factors may offset the effect of a dwindling middle-aged population, history suggests that negative demographics will hold down developed market valuations over the coming years.

This supports the view that emerging markets will outperform developed ones in the medium term.

Researchers behind the report also highlighted that peripheral Europe has the most positive demographics out of the developed markets.

These countries are expected to see the share of their middle-aged population rise over the next few years, with Ireland and Greece not peaking until close to 2020.

'This could offer medium-term support to these markets - if they solve their immediate problems, they could perform well given how depressed their valuations are currently,' said the report. - BT