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BofA says post-COVID Generation C will have a $3trn investment opportunity

If that sounds a little futuristic – and frankly, a little exhausting – it may be easier for investors to consider some of the other big demographic trends BoA believes investors need to wrap their heads around.

Essentially, the bank predicts a world where people – always the prime drivers of change in society and markets – peak and begin to fall.

“The number of people globally may have doubled in the past 50 years, but declining fertility, an aging society and a decreasing working-age population in most developed economies are already having implications for migration, innovation (eg, automation), urbanization, and skills gaps as industries – and the next generation of workers required to fill them – transform.”

Opportunities for investors

As falling fertility rates see the world hit “peak children” in 35 years and “peak people” just seven years later, BoA sees a $US2 trillion ($2.8 trillion) opportunity for investors to exploit.

“Investing in life insurers, wealth management and pensions will be crucial for the great transfer of wealth from Baby Boomers all the way through to Gen C,” BoA says.

“Technology and automation will be a crucial enabler for multiple themes including labor market shortages, New Asia’s demographic transition, and connectivity for the rise of Africa.

“Healthtech can help mitigate peak fertility and declines in the working-age population. And finally, ESG, particularly the S, remains an important risk framework for many of these themes, such as immigration, inequality and inclusion.”

There are two Australian stocks in the 50 companies BoA says can provide a way to ride this demographic hurricane.

Block (formerly known as Square) looms as a company that can help usher in the “cashless, shopless, driverless, potentially college-less” world that Gen C will likely inhabit.

And IDP Education, which BoA describes as a “global leader in international student placements (mainly from Asia) into developed market universities and colleges”, looms as a company to help facilitate the waves of immigration that will be vital to solving a global labor shortage tipped to double to 85 million by 2030.

While all this might feel a little too distant for investors struggling to figure out what the next few months look like, it is possible to draw lines from the tumult of this week to the big demographic trends BoA foresees.

The energy crisis gripping the country in part reflects the urgency of a climate change challenge that will drive future migration patterns and, according to some data, is already weighing on fertility patterns.

The labor shortages plaguing business (and, in the Reserve Bank of Australia’s view, steadily pushing wages higher) might be solved by a pick-up in migration in the short term, but an aging population points to more permanent issues of worker scarcity.

Warnings from Treasury about the need to rein in spending to ease pressure on the federal budget are much more ominous when you consider the growing healthcare and retirement costs associated with longevity.

And the forecast from the World Bank this week that the world faces several years of stagflationary conditions – that is, high inflation and low growth – is much easier to believe if you see an environment where elevated energy costs and higher wages collide with lower economic growth on a planet dominated by retirees.

Generation C might be yet to flex its muscle, but Bank of America is right. Demographic red flags are everywhere, and investors need to start thinking hard about their consequences.

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