ASIATODAY.ID, JAKARTA – Two countries in Asia, namely Indonesia and India, are being targeted by global investors.
This is because developing countries such as Indonesia and India with rapidly growing populations will benefit from the growth of investment. This is because demographics are considered to play a large role in global investors’ investment decisions.
Research by Fidelity International and the BlackRock Investment Institute reveals that investors are now starting to focus on the two developing countries in Asia due to the expected increase in infrastructure spending. This in turn will bode well for the economies of both countries.
Indonesia and India stand out at a time when rapid aging is hitting other countries in the region, including China. India will surpass China as the most populous country in the world in mid-2023. Then, BlackRock’s analysis shows a positive relationship between the growth of a country’s working age population and stock price valuation.
On the other hand, Fidelity sees the financial sector as the main beneficiary as credit needs for corporations and consumers increase.
“All companies large and small need financing. “This partly explains why bank shares generally correlate with GDP growth in emerging markets,” explained Fidelity investment management in Singapore, Ian Samson, quoted from Bloomberg, on Monday, May 27 2024.
According to World Bank data, India and Indonesia are expected to experience population growth of more than 10% from this year to 2040. Meanwhile, China is likely to experience a population decline of almost 4%.
Changes in the working age population, namely those aged 15 to 64, are becoming a more important metric. Prior to China’s overall population decline, the country’s working age group had been shrinking for years, while India had the youngest working age population among major economies.
BlackRock Investment Institute strategists led by Jean Boivin in March 2024 also said that faster increases in the working age group usually signal higher income growth in the future. Migration, greater labor force participation, and automation are also factors at play. Then, the demographic dividend is also part of the optimism that drives the rise in both stock markets, as well as a number of unique factors including expectations of election results that support the market.
On the other hand, analysts also note that structural reforms to reduce regulatory bureaucracy, increase labor market flexibility and facilitate foreign investment are considered critical for the economy to capitalize on the demographic impact.
Meanwhile, Samson said that ultimately the growth is employment times productivity.
“Solid structural reforms like those we see in India and Indonesia will enable the creation of sufficient job opportunities so that they can benefit from the demographic bonus,” he explained.
For sovereign debt investors, age dependency ratio and fiscal burden are among the metrics to consider for long-term investments.
It is known that international investors have withdrawn US$1.8 billion from Indonesian debt securities as the new government’s promise to increase spending raises concerns about fiscal health.
Director of fixed income at HSBC Global Asset Management, Sanjay Shah, said that an aging population increases the costs of healthcare and pension funds, with developed countries having more comprehensive social benefits compared to most developing countries.
“In developing countries, pension program burdens may be more varied and less oriented towards fixed benefits,” he said, thereby reducing the burden on state funding. (ATN)
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