Business Daily Wednesday, May 31 2017 15
Opinion
China’s 220 million seniors may reshape the world for example). And it’s not just tourism: In recent years, businesses ranging from car companies to online marketplaces have built features marketed to China’s elderly. Health care is another industry that may be transformed. Unlike Japan and Western Europe, China is aging before it has grown rich enough to develop the institutions -- such as nursing homes -needed to sustain a large senior population. Increasingly, the private sector is stepping in. For those who can’t aff o r d t o t rav e l overseas, private preventative care is becoming much more common. Elsewhere, companies are developing “smart care” products, in which internet-connected devices track the health of customers. Beijing is expanding a program that uses a discount shopping card to monitor seniors while applying data analytics to anticipate their needs. Nestle clearly understands these trends. At the launch of its new senior milk powder, a company official told the press: “As an old Chinese saying goes, `Diet cures more than the doctors.’” Long-term, that attitude -- combined with investments in health-focused artificial intelligence and big data by companies such as Alibaba Group Holding Ltd. and Baidu Inc. -- may well reshape the
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For decades, Nestle SA has tried to get its infant milk powder into the hands of China’s new mothers with promises of brighter, healthier babies. Now it’s trying to do the same for the elderly. Last week, the company launched “Nestle YIYANG Fuel for brainTM senior milk powder,” a formula designed to help China’s seniors “refuel their brains and start a new smart life.” The announcement didn’t get quite the hype that products targeted to China’s millennials do. But it may yet prove more consequential. With 222 million people over age 60, China is home to the world’s largest population of seniors, and their economic clout is set to surge in the years ahead. By one estimate, the value of products and services geared toward them may reach 33 percent of gross domestic
product by 2050. If that trend holds, caring for seniors will be China’s dominant industry by the middle of the century, and old folks will be its defining demographic. That presents plenty of challenges for the government -- but also some major opportunities for business. Seniors are already playing a key role in shifting China’s economy away from exports and toward consumption. Fan Min, president of China’s biggest online travel site, predicts they’ll be the primary drivers of the country’s tourism market within a decade. About 5 million of them are traveling overseas annually, with that number expected to more than double by 2030. As they venture out, the travel industry is adjusting to their demands (by offering more group tours and cheaper accommodations,
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industries with faster technological change. While fast technological change seems to bring big winners and concentration - see Facebook, it also brings with it the risk that companies will be supplanted by other technology in the future. Indeed, one of the named superstar firms is Wal-Mart, which as a mostly physical retailer is now seeing its own position hollowed out by the likes of Amazon. Or consider IBM, which surely would once have been thought of as a superstar but which now is notable more for its fondness for share buybacks than its strong returns as a stock. The reality is that a winner-take-all-society is a risky society, and that applies as much to investors as it does to college graduates or mid-career workers. It simply is not as simple as just figuring out who is ‘winning’ and climbing on board. A concentrated bet on superstar firms is very likely highly risky, not just in theory, as are all concentrated bets, but also in practice due to the rate of technological change.
It is notable too that superstar firms have risen, and wages fallen, during a period with rising globalization and a political and regulatory backdrop which allowed it to happen
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Capturing growing margins via the index
Index investing, in contrast, will allow investors to be exposed to the rising, or persistently high, corporate
health-care industry, both in China and globally. But the area where China will have the biggest influence on the market for senior services will likely be housing. As of 2015, China had an average of only 26 nursing beds for every 1,000 seniors. Over the coming decades, it’s unlikely that the government will be able to build -- much less staff -- nearly enough facilities to meet the demands of its growing elderly population. As a result, it will need to develop new and more creative models for senior care. That might mean more automation (there’s at least one robotics pilot program in Hangzhou). It could mean home care that’s supported by a network of internet-dispatched delivery services (especially for food). And it will surely mean an expansion of smart monitors and technology to interpret the data they collect. Given the size of the potential market, there’s reason for optimism that the China’s entrepreneurs can figure out low-cost models that work at home -- and quite possibly overseas. For China’s current generation of seniors, having come of age at a time of global isolation and domestic hardship, that’s a level of influence few could have imagined in their youth.
Seniors are already playing a key role in shifting China’s economy away from exports and toward consumption
In age of ‘superstar firms,’ index investing logic holds Even in the age of “superstar firms,” the logic of index investing holds. New research details how a small number of companies - think Google, Amazon and Apple - have come to dominate their sectors, capturing a growing share of revenues and helping to create an economy featuring high corporate profits but a lower share of the pie for workers. Economists David Autor, David Dorn, Lawrence Katz, Christina Patterson a n d J o h n Va n Reenen find that industries have become more concentrated and while what they call “superstar firms” pay well, they make extraordinary profits. The net impact across the economy, perhaps as other firms struggle to compete, is that workers’ share of GDP falls. Commentators have concentrated on the economic, social and policy implications of superstar firms but the investment ones are also interesting, and not obvious. While you might think that the trick to investing in an economy with a few winners and many also-rans is to identify the Amazons and buy them, this, of course, is much more easily done looking backward than looking forward. One problem is that the research finds that the concentration rises in
Adam Minter a Bloomberg View columnist
margins which are a feature of a more highly concentrated economy. In other words, and sadly, the wise bet may not be on Amazon or Facebook, per se, but against labour. While rising concentration and falling wages are new, it has long been a fact that the vast majority of the money made on the stock market comes via a tiny number of firms which skyrocket in value. Hendrik Bessembinder of Arizona State University calculated in a recent study that just 86 stocks have, over 90 years, accounted for US$16 trillion in wealth creation, or about half the total of wealth created by the entire universe of companies over that period. The other 26,000 or so stocks created the other US$16 trillion of wealth, but even that is a misleading guide to how well an individual stock might do. The top 1,000 stocks, or less than 4 per cent of all companies traded over 86 years, account for all wealth creation. “The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform,” Bessembinder wrote
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Bloomberg View
James Saft a Reuters columnist
in a draft study updated in May. It is notable too that superstar firms have risen, and wages fallen, during a period with rising globalization and a political and regulatory backdrop which allowed it to happen. It may well be that Google, Amazon and Facebook face new political and regulatory roadblocks to maintaining their position. This certainly is already true in China. So your choices boil down to these: 1 - Try to identify some of the 86 superstars in advance. Good luck with that. 2 - Buy stocks you think are among the 86 after they so prove and hope they hold their position. This strategy misses out on all of the gains these few superstar firms make before it dawns on you they’ve arrived. It also exposes you to huge risks that they are in turn supplanted. 3 - Buy a broad stock market index, including earlier-stage companies, and slowly build wealth by collecting the equity risk premium and allowing it to compound. The logic of choice 3 should hold as the balance between profits and labour evolves. Reuters