The Zhitong Finance App learned that Huatai Securities released a research report stating that on January 15, the State Council issued “Opinions on Developing the Yinfa Economy to Improve the Welfare of the Elderly” (hereinafter referred to as “Opinions”). As China's aging deepens, the first banking economic policy was introduced or spawned a series of investment opportunities from the demand side, supply side, and capital side: 1) On the demand side, the lives and spiritual needs of the elderly are core concerns, focusing on pharmaceutical/medical/old-age consumption/travel/pet economy; 2) supply side: labor supply is declining, driving demand for mechanized, intelligent, and unmanned scenarios; 3) capital side: Refer to overseas experience. Interest rates in an aging society are declining, which is beneficial to long-term and dividend assets.

Huatai Securities's views are as follows:

The rock of another mountain: In the process of population aging, the equity market dominates medicine, technology, and consumption

China is in a critical period of demographic transformation. In 2022, the population aged 65 and above accounted for 14.9%, surpassing 14% for the first time. From the analysis of indicators such as the proportion of the elderly population, average age, old-age dependency ratio, and population burden ratio, the current level of aging in China is close to Japan in the mid-1990s and South Korea around 2015. Referring to overseas experience, aging is negatively correlated with the growth rate of the economy, the level of inflation, and the growth rate of capital formation, and is positively correlated with income levels, but it is important to note that the impact on inflation and total factor productivity is not linear. Furthermore, the aging process is usually accompanied by a shift in the economic engine to consumption and a decline in the long-term interest rate center. Reviewing equity market performance in Japan, South Korea, and Europe as the degree of aging deepens. Pharmaceuticals, technology, and consumption dominate, which is basically in line with changes in the industrial structure.

Demand side: Focus on policy support and the direction of growth in the life/spiritual needs of the elderly

The “Opinion” focuses on improving the welfare of the elderly, and focuses more on the living and spiritual needs of the elderly and corresponding supporting measures. As aging deepens and overall consumption levels rise, it will drive related demand growth: 1) Healthcare: the share of medical and health care expenditure will increase as the degree of aging deepens, focusing on medical devices/innovative drugs/traditional Chinese medicine/medical beauty (anti-aging); 2) Pension services and pension finance: establishing a service referral and bridging mechanism between home, community, and institutional care to enrich the development of pension finance products; 3) Elderly consumption: focus on e-commerce, product dimensions focus on elderly food/clothing/personal care/smart homes, etc.; 4) Entertainment and tourism: Enrich cultural and sports services for the elderly, including cultural and sports services for the elderly but not limited to travel, etc.; 5) Pet economy: The average household size in an aging society is shrinking, and the demand for pets as emotional compensation is increasing.

Supply side: Labor supply reduces demand for mechanized, intelligent and unmanned scenarios

As the “cost performance ratio” of the domestic labor force decreases due to aging, mechanization and intelligence assist and replace or accelerate labor in production activities, the demand for unmanned scenarios in daily life increases: 1) General automation: labor replacement in manufacturing and industrial chain transformation, gradually shifting some labor-intensive industries to overseas regions such as ASEAN, and supporting the export of related machinery and equipment; there is still room for improvement in domestic production rates in high-end machine tools and robots; 2) Driverless driving: solving the travel pain points of the elderly, the penetration rate of advanced intelligent driving is expected to increase; 3) No manpower in the service industry Alternative, the frequency of online shopping among middle-aged and elderly people may increase e-commerce logistics demand; 4) Agricultural machinery: With the aging and loss of the rural population, the current level of mechanized agricultural production is low, and it is expected to increase with policy support.

Capital side: The downward trend in interest rates and the long-term financing of capital are beneficial to long-term and dividend assets

Judging from overseas experience, aging is usually accompanied by a decline in long-term interest rate centers, which may affect the structural performance of the equity market through two paths: 1) from the DDM model, a decline in discount rates favors long-term assets and forms a capital chain advantage for emerging industries, but needs to be matched with the industrial cycle; 2) the general social return on investment center declines, investors' expected returns are lowered, and the attractiveness of dividend assets increases relatively.

The above two types of assets seem to be “opposites,” but taking Japan and the US as a guide, growth stocks and dividend stocks both had excess returns during the period when interest rate centers declined. Furthermore, aging is expected to bring increases in insurance capital, pensions, etc., favoring market growth and dividend value in terms of capital preferences, but there may be differences between economies. For example, US pension allocations are mainly S&P 500, and domestic pensions pay more attention to dividends.

Risk warning: Policy strength falls short of expectations; industrial development falls short of expectations; risk of historical experience failure.