IKEA has a problem in China, but not from a lack of visitors.
It's because of old people. Specifically, the thousands who set up in the in-store cafes to meet friends, drink coffee, and date suitors. They aren't buying furniture, but they are going to IKEA because there's no space left in China's community centers as China's elderly population expands.
Greying population, Golden opportunity
Numbering 130 million in 2015, China's 65+ population is the world's largest and is forecasted to grow to 246 million by 2030, 3 times Germany's total population (1).
But while it’s challenging for IKEA to monetize its veteran visitors, we don't see it as a problem for companies in other sectors, in fact we believe that it’s a golden opportunity.
That's particularly true for the insurance sector, where life insurance premium sales grew 24% y-o-y to USD 309bn in 2017 , and overall premiums are forecast to grow 11.8% p.a. between 2017 and 2022 (2) .
Geoffrey Wong, UBS AM's Head of Emerging Markets and Asia Pacific Equities, says that 'the social security system (in China) is probably too small for upper income households and they have to buy insurance' - so that means opportunities for private insurers offering the health, life, and pension insurance products sought by China's increasingly affluent classes.
Health care spending has to increase
At the same time, Geoffrey says that, 'health care spending has to increase….China health care spending is very small compared to Europe and the US, and as population ages it has to catch up.'
And that's an opportunity for sectors like pharmaceuticals and medical services. More old people means more age-related disease cases - 150.6 million cases of diabetes estimated by 2040 (3) - that supports a sales pipeline forecast to take total health care sector revenues in China from USD 780bn in 2017 to USD 2.5trn by 2030 (4).
For fundamentals to investment decision
But knowing fundamentals is one thing, it's another to identify companies positioned to benefit -and that's where the UBS AM team of China equity specialists looks to make the difference.
Their fundamentals-based approach seeks to identify companies with the business models, management and product quality to lead over the long-term.
And judging by their conviction in the long-term prospects for health care and insurance sectors, we believe that our China Opportunity Equity Fund strategy is well set for the future.