Australia, like many developed nations, is facing an ageing population crisis. While the issue poses serious economic challenges, it also opens up significant opportunities for companies and investors.

In a speech made in late 2018, professor David Blake, director of the Pensions Institute at London’s Cass Business School, described a “demographic time bomb” on the horizon for OECD nations.

In the 1950s, across the globe, there were on average 12 people in the workforce to support each dependent. By 2050, this ratio is predicted to contract to roughly 5:1.

Ageing populations are driven by increasing life expectancy and falling birth rates, and are typically seen in nations that have held ‘developed’ status for several decades.

In Australia, ABS data shows that there are currently 100 workers in the population for every 50 dependents. By 2066, as Australia’s population approaches 50 million, there may be as many as 70 dependents for every 100 workers.

This demographic shift will see the public purse put under increasing strain, as a greater share of the population exit the workforce and become reliant on the government for care, medication and housing. 

With this in mind, what areas look likely to benefit from the baby boomer workforce exodus? And which ASX small caps are already reaping the rewards?

 

Healthcare

The health care sector is the most obvious beneficiary of the ageing population trend.

With a greater population of older people, there is naturally an increased demand for health care services, equipment and supplies.

In the immediate term, Deloitte analysts predict spending on healthcare will grow around 4.1 percent each year between 2017 and 2021. In addition to this, government health expenditure is expected to reach 13 percent of GDP by 2049-2050, up from its current levels of around 7 percent.

All this expansion will leave space for smaller players to grow, with enormous potential upsides for investors.

ASX health care stocks with positive returns over the past year (<$300M MKT CAP)

Ticker Name Total Return (YoY) Market Cap Current Price
RHT RESONANCE HEALTH LTD 204.17% $ 29.4M 0.073
JHL JAYEX HEALTHCARE LTD 120.00% $ 5.5M 0.033
CDX CARDIEX LTD 112.81% $ 37.9M 0.060
VHT VOLPARA HEALTH TECHNOLOGIES 66.67% $ 215.2M 1.200
BD1 BARD1 LIFE SCIENCES LTD 63.56% $ 15.9M 0.016
SDI SDI LTD 47.12% $ 98.0M 0.825
QTM QUANTUM HEALTH GROUP LTD 28.00% $ 35.1M 0.032
CYC CYCLOPHARM LTD 20.17% $ 81.7M 1.190
RSH RESPIRI LTD 20.00% $ 44.2M 0.084
AJJ ASIAN AMERICAN MEDICAL GROUP 20.00% $ 40.5M 0.120
MGZ MEDIGARD LTD 11.11% $ 2,.7M 0.020

 

Biotechnology

Small cap biotechs are another significant grouping on the ASX that look set to benefit enormously from Australia’s ageing population.

The industry, focally its regenerative medicine subset, is particularly well suited to meet the medical needs of older populations. Stem cell applications for treating osteoarthritis have already seen significant pickup in Japan, the nation currently experiencing the worst ageing population crisis.

READ: Australia’s pure play stem cell companies

Described in a 1999 federal government report as a sector that “hardly rates as an economic force”, biotechnologies have experienced a meteoric rise over the last two decades.

In 2017, the Australian biotech industry reached more than $50 billion in market capitalisation, boasting 140 ASX listed companies.

ASX biotech stocks with positive returns over the past year (<$300M MKT CAP)

Ticker Name Total Return (YoY) Market Cap Current Price
BIT BIOTRON LTD 335.43% $ 47.0M 0.079
PAR PARADIGM BIOPHARMACEUTICALS 260.61% $ 166.9M 1.190
AVH AVITA MEDICAL LTD 128.81% $ 251.7M 0.135
LCT LIVING CELL TECHNOLOGIES LTD 50.00% $ 22.2M 0.039
IMM IMMUTEP LTD 39.13% $ 108.2M 0.032
TLX TELIX PHARMACEUTICALS LTD 28.44% $ 152.8M 0.700
OPT OPTHEA LTD 25.60% $ 195.8M 0.785
CYP CYNATA THERAPEUTICS LTD 25.40% $ 160.4M 1.580
ACW ACTINOGEN MEDICAL LTD 4.00% $ 58.1M 0.052

 

Pharmaceutical

Similar to biotechs, the pharmaceuticals industry will see sizeable growth as the median age shifts towards later life.

Studies in the US show that 75 percent of individuals aged between 50-64 use at least one prescription drug regularly, with this figure rising to 91 percent for 80+ age bracket.

This is paralleled by the dramatic increase in the number of drugs consumed by older people.  While 50-64 year olds in the US held prescriptions for around 13 medicines, this number rises to around 22 for patients in the the 80+ age category.

These figures, when put into the context of an ageing population, spell bullish prospects for drug and medicine producers.

READ: A look at the common uses of medical cannabis

Of particular note in the ASX small caps pharmaceuticals scene are the growing number of medicinal cannabis companies. Offering a range of pain relief and alternative therapeutics, pot-stocks make up a notable portion of the pharmaceutical sector’s top performers in 2018.

ASX pharmaceutical stocks with positive returns over the past year (<$300M MKT CAP)

Ticker Name Total Return (YoY) Market Cap Current Price
IDT IDT AUSTRALIA LTD 124.64% $ 36.7M 0.155
PBP PROBIOTEC LTD 71.92% $ 98.3M 1.540
RNO RHINOMED LTD 33.33% $ 25.5M 0.180
VLS VITA LIFE SCIENCES LTD 20.32% $ 47.4M 0.865
ACR ACRUX LTD 12.90% $ 29.1M 0.175

 

Leisure

Somewhat breaking step with the previous players is the leisure sector.

As Australia’s baby boomers transition into retirement, there will likely be an increase in leisure, travel and general entertainment spending.

Travel spending, which is comparatively highly in Australia, increases year on year for adults until age 45, after which it plateaus.

For these ASX top performers we’ve also included their core industry focus, as the sector has includes a wide variety of companies.

ASX leisure stocks with positive returns over the past year (<$400M MKT CAP)

Ticker Name Core Focus  Total Return (YoY) Market Cap Current Price
EXP EXPERIENCE CO LTD Adventure Sports 8.20% $183.4M 0.33
SLK SEALINK TRAVEL GROUP LTD Tourism and Travel 7.4% $388.47M 3.97
EBG EUMUNDI GROUP LTD Holiday Accommodation   4.12%  $38.1M  1.00
AMS ATOMOS LTD Cameras  3.73%   $126.8M 0.83
FWD REEF CASINO TRUST Casinos 4.00% $147.2M 2.96
AQS  AQUIS ENTERTAINMENT LTD  Casinos 0% $7.96M 0.04

 

Conclusion

Time will tell the full extent to which Australia’s ageing population will catalyse growth in the health care, biotechnology, pharmaceutical and leisure sectors.

A close eye on Japan’s players in these spaces will provide a strong indicator of potential growth, alongside the Australian government’s policy responses over the next decade.

Regardless, what has been predicted as an OECD nation time bomb, also looks set to be a potential boon for savvy investors.

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.