TOL - 19th Dec, 2023
How to profit from Australia's surging population growth
Australians are feeling the crunch as population growth continues to swell into the new year. Here's how to turn that pain into profits.
Note: This interview was recorded on Wednesday 6 December 2023. You can watch the video or read a transcript below.
According to SQM Research, the residential vacancy rate in Australia is 1.4% - meaning it is incredibly hard to find properties right now to rent. As a consequence, rental prices have subsequently soared upwards, with weekly rents up 14.2% over the past 12 months in Sydney, 18.7% in Melbourne, and 17% in Perth.
One factor contributing to today's tight property market is the 563,200 people (net) who have migrated to Australia in the 12 months to the end of March 2023 (according to the Australian Bureau of Statistics).
And while TMS Capital's Ben Clark believes this has helped Australia avoid an economic contraction throughout 2023, he argues it has likely also led to far stickier inflation than the Reserve Bank of Australia would have hoped.
Because I personally am feeling quite a bit of pain right now, having been searching for a new rental property for the last month and a half with little (read: zero) success, I thought I'd put the migration surge to Clark to see how investors like you and I can profit from Australia's surging population growth.
In this episode of The Pitch, Clark shares why population growth is a tailwind for Australia's economy, the factors investors should look out for when assessing companies, and three examples that could benefit over the year ahead.
Transcript
Ally Selby: Hello and welcome to Livewire Markets' The Pitch, I'm Ally Selby and I don't know about you, but renting in Sydney is getting almost ridiculous. There's not a lot of homes available and it's getting more and more expensive. It's probably no surprise then that Australia's population growth is one of the fastest in the globe. So to find out how you can profit from that, we're joined by TMS Capital's Ben Clark. Thank you so much for joining us today, Ben. Glad to have you here.
Ben Clark: Thanks for having me. Owning is getting very expensive as well, not just renting, so it's across the board.
Australia's population growth at 2.2% p.a.
Ally Selby: Very, very true. What trends are you seeing in population growth right now?Ben Clark: I think it is an interesting topic because not a lot of people look at it because I think it's such a long-term thematic, and everyone's thinking about what's going to go on next year or next quarter. But it's undeniable that we are in this incredible position where Australia's population is growing roughly faster than any other developed country on the planet.
We're growing at around 2% per annum at the moment, that'll probably calm down a little bit. But it's forecast to remain at least 1.5%, which doesn't sound like a lot, but it's about 3.5 times faster than the United States is growing.
The United States is one of the only other developed countries that is growing. A lot of developed countries are sideways or going into decline. So for investors, if you are a global pension fund or sovereign fund and you're looking around the world and thinking what to check off, I guarantee you with their long time frames, that's a big tick for Australia.
What this means for Australia's economy
Ben Clark: Well, it's a natural tailwind. But in the short term I feel like it's a bit of a mixed blessing because what you're alluding to at the start there with your comments, the 500,000 people who have moved to Australia in the last 12 months have probably insulated us from a big contraction. If you went back to the start of this year and asked a lot of people, what do you think is going to happen this year? I guarantee you eight to nine out of 10 would've said, "There's going to be a recession at some point during the year." We haven't even come close, and that's despite the RBA going as hard as they have on rates.
I think the biggest factor behind that is that half a million people have moved here. They all need to live somewhere. They all need to buy a car, a TV, and a fridge, and that extra level of demand has helped. But why I say it's a mixed blessing is because it's also probably seen our inflation stick a bit higher and harder than many expected despite what the RBA has done. So although the RBA has gone hard on rates, they could have gone to 10% and there still probably would've been half a million people moving here and buying those products.
So I think that's been a bit of a difference with Australia. Long-term, of course, it's great for our economy. It's going to add a tailwind to growth. Our population is forecast to increase significantly by 2050 and then significantly increase by 2100. We are one of only two developed countries where that's forecast to happen. China's got 1.45 billion people, in 2100 it'll have about 770 million. Their population's going to nearly halve. That's going to be a massive issue for that country, but it's a tailwind for Australia.
Ben Clark: It'll still be here.
2 factors to look out for in companies
Ally Selby: How are you playing this in your portfolio right now? You alluded to it there that a lot of immigrants are buying new TVs and whatever they may need. How are you taking advantage of population growth within your portfolio?Ben Clark: Well, I think I'd start by saying you probably don't go out and buy a company or a stock because you think the population's going to grow. It's kind of the icing on the cake for a lot of businesses. So a lot of the things that you look for in a company I think still apply, but the population growth just means it's hopefully going to be a bit better than expected.
So I think two things for me, you want a company that's got a really entrenched market position in Australia. So if they're moving to Australia, that person's probably going to use that product and that company is still going to be selling that product in another 10 or 15 or 20 years. So you really get the upside of that growth.
Secondly, you want a company that can grow its customer base or has exposure to a growing customer base. So corporates should grow theoretically, but not necessarily at the rate the consumers will. So parts of the ASX will do a bit better as a result of this than others.
3 top stocks for population growth
Ben Clark: I think let's start with one of the biggest companies on the exchange, Commonwealth Bank (ASX: CBA). 500,000 people moved here. I almost guarantee you that 500,000 people have had to open bank accounts here. CBA has the dominant market position in Australia. It's got the best tech platform, it's got the best reputation. So it's immediately picked up a whole bunch of new customers. Further down the track, those customers will start to look for a mortgage, credit cards, and all those sorts of things. So it gives them a growing customer base to cross-sell their services to.
Wesfarmers (ASX: WES) is another one. 70% of Wesfarmers earnings comes from Bunnings. With more people, inevitably, at some stage there is going to be a building boom in this country, and a lot of those products are going to come from Bunnings stores. You're going to get people moving here and wanting to paint their rental or do some modifications. People buy houses, they renovate. A lot of those products are going to come from Bunnings, so that's got to be good for them.
A third one will probably be Transurban (ASX: TCL). They've got the dominant motorway position around the country. Inevitably, a lot of these people will live further and further away from the city, which means they're going to have to spend more time commuting to work on toll roads, etc. So they should be a big winner out of this.
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian Group, Your Money, Sky Business and Sky News.
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
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Ally Selby is the deputy managing editor at Livewire Markets, joining the team at the end of 2020. She loves all things investing, financial literacy and content creation, having previously worked for the likes of Financial Standard, Pedestrian...
Expertise
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