Ever since the white paper on population came out, there has been a lot of debate on whether this is the best course for Singapore. On the ground, there has been a lot of unhappiness with regards to the sudden surge in population in the recent years. This post is not meant to debate whether the move is correct or not, but rather how we can invest smartly based on the trend provided.
If things go according to the plan, population growth would go from 5.3 mil today to 6.5-6.9 mil in 2030. Taking 6.7 mil figure, that would be about 78k per year or 1.3% compounded annual growth rate. The 6.9 mil figure looks large, but the growth is only 1.3% per year, so is that a large jump?
Anyhow, if population continues to grow at a stable rate, inflation is definitely a certainty. Investing in any assets which are inflation hedges will be a smart move to do.
Property is a time tested asset which is proven to be a good inflation hedge. The population growth will certainly drive up rentals and housing prices over time. While there is currently an interest rate anomaly which means prices will be uncertain in the mid term, the long term trend projected to as far as 2030 will definitely be up. For further reading on property investment, you can read 6 Reasons Why You Should Invest In Property
Stocks which operate businesses are also considered inflation hedges as the selling prices of good and services will generally go up as well over time. However, we should be selective on the type of stocks which will benefit from population growth in Singapore. There are a few categories which will benefit from the population growth.
1. Healthcare Services / Healthcare REITs
While healthcare services do not trade at a cheap valuation, they will be a primary beneficiary not just from population growth as it is a necessity. The ageing population also requires more healthcare services than a young population. Healthcare REITs can also be a major beneficiary as they own the hospitals which are rented out to healthcare providers.
Some examples are Raffles Medical/Q&M/Parkway REIT
2. Consumer Goods
With population growth, consumption of consumer goods will definitely increase. The general public has also gotten used to the fact consumer goods will increase in price over time due to inflation.
Some examples are QAF/F&N/APB
3. Consumer Retail
Like consumer goods, consumer retail especially supermarkets and hypermarkets are the key places for consumers to buy their daily necessities.
Some examples are Dairy Farm/Sheng Siong
As population grows, there will be more and more people carrying mobile phones and using internet services. There are only 2 companies which can provide bundled services of mobile, internet, Pay TV etc.
Some examples are Singtel/Starhub
5. Retail REITs
Retail sector is most driven by population as compared to office and industrial space. In particular, suburban malls are very defensive as they provide daily necessities for the people living in the area. As population density increases, the malls will get more foot traffic, therefore leading to higher rentals as well.
Some examples are CapitaMall Trust / Fraser Centerpoint Trust
With inflation, the purchasing power of money will continue to go down over time. As such, it is important to invest as the continued population growth is one of the key signs that inflation will continue.
For further reading, you may be interested in: