Megacities: a supersized opportunity
Megacities form an important catchment for Real Assets due to their concentrated population levels and their expected growth
The Asia Pacific ex Japan region is a population growth powerhouse, home to some of the fastest growing countries and cities in the world. Over half of the world’s megacities will be in the region by 2030, and this represents a multi-decade opportunity for Real Asset investment.
Population growth = demand for real assets
Population growth is a critical part of our investment thesis for Real Assets. Quite simply, the more a population grows, the higher the volume of demand for the essential services that Real Assets provide. A growing population means increased traffic on tollways, more passengers passing through airports and more people visiting local shopping centres.
The world’s population powerhouse
The Asia Pacific ex Japan (“APexJ”) region is a population growth powerhouse with one of the fastest growing populations in the world. The expected growth rates out to 2030 are far above other parts of the world in both percentage and absolute terms.
Expected population growth: 2015 to 20301
*Based on countries in the MSCI AC Asia Pacific ex Japan Index
Urbanisation boosts city populations
We also see large levels of urbanisation driven population growth in the region as people increasingly move to the cities (e.g. for a better life, job prospects, education etc). This is important, as while some countries may see anaemic levels of overall population growth, their tier-1 cities continue to grow rapidly.
A good example is China. While the overall country-level forecast population growth rate is low, the annual growth rates at a city level are some of the fastest in the world.
Expected population growth for large Chinese cites: 2015 – 2030 (% p.a.)2
Room for more urban populations
Total urbanisation across our investable universe remains low, so there is a lot of room for growth. The United Nations (UN) expects urbanisation in the region to continue to increase, from 47% to 57% by 20303.
Urbanisation in 2015 and 2030 across Asia
This implies significant growth in urban populations, with growth rates at multiples of what we see in other regions.
Urbanisation growth between 2015 and 2030
*Based on countries in the MSCI AC Asia Pacific ex Japan Index
India provides a stark example of this growth. Its urbanisation is forecast to grow by 22%4 by 2030. This will bring total urbanisation to 40% by that time, adding an extra 100 million people living in its large cities5.
Large cities growing faster in Asia
Megacities (i.e. those cities with over 10 million inhabitants), are sizable cities that form an important catchment for Real Assets due to their concentrated population levels and expected growth.
Based on UN data, there are currently 29 cities that meet the megacity definition globally6. Today, the largest city is Tokyo, however, the largest city in 2030 is set to be Delhi in India.
Given aforementioned urbanisation trends, the number of megacities in Asia is expected to grow at faster rates than any other region globally. As an example, by 2030, there will be an almost 50% increase in the number of Asian megacities, and by that time, a resounding half of the world’s megacities will be from the region7.
Megacities in 2015 and 2030
New Asian megacities to emerge between 2015 and 2030 include Chengdu and Nanjing in China, Ho Chi Minh City in Vietnam, Bangkok in Thailand, Chennai, Ahmadabad and Hyderabad in India and Seoul in South Korea. India and China alone will account for over two thirds of Asia’s megacities by 2030.
APexJ megacities in 2030
*New megacities in APexJ between 2015 and 2030.
By 2030, Tokyo will be the only developed world megacity in the top 10, with Osaka and New York being overtaken by developing world cities8.
This represents a shift in global population centres from developed to emerging markets. Interestingly, significant Asian cities such as Beijing, Mumbai and Delhi will all be larger than major US cities such as New York.
Shenzhen: from farm to megacity and more
Shenzhen, a technical mega city since 20109, is a fantastic example of the region’s urbanisation and population growth in action. Farmland 40 years ago, it has now developed into a large, dynamic and populous Chinese city.
It is interesting to note that UN estimates for actual population keep exceeding its own forecasts. The 2014 UN population report forecast 11.3 million people in Shenzhen by 202010, however, this was largely met by 2015, five years ahead of forecast11.
Shenzhen’s population: beating expectations
While we have seen large growth in the urban population already in Shenzhen, we do not expect this to slow anytime soon. The latest UN forecasts suggest an attractive per annum growth of around 1.7% from 2015 to 203012.
Bangalore: garden city to IT mecca
Similarly, Bangalore in India has also experienced incredible growth in recent history, graduating to megacity status in 201513
Over the past three decades it has converted from being a ‘garden city’ to establishing itself as the “Silicon Valley” of India.
It is now a significant global outsourcing hub for some of the largest players in IT (Cisco, Microsoft etc.) given the competitive cost of its workforce, the scale of services it can provide, as well as the sheer number of well qualified professionals (across IT, engineering etc.).
UN forecasts for Bangalore suggest these positive growth trends will continue with the city expected to grow by 3.2% p.a. from 2015 to 203014. This is in the top quartile for growth rates of any city globally.
Future is bright for Real Assets
In conclusion, the Asia Pacific ex Japan region is set to see significant levels of population and urbanisation led growth going forward, which bodes well for the demand for Real Assets. Given that population growth tends to be steady and consistent over time, likewise demand for Real Assets will remain consistent and enduring going forward.
With a combination of quality companies, high population growth and attractive yields, Real Assets remain a bright spot in a world of uncertainty.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.
1Source: United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. File 5: Total Population at Mid-Year by Region, Subregion, Country and Area, 1950-2050 (thousands)
2Source: United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. File 12: Population of Urban Agglomerations with 300,000 Inhabitants or More in 2018, by Country, 1950-2035 (thousands)
3Source: United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. File 2: Percentage of Population at Mid-Year Residing in Urban Areas by Region, Subregion, Country and Area, 1950-2050; and 5 as per above
4Source: File 2 as per above.
5Source: File 12 as per above.
6Source: File 2 as per above.
7Source: File 2 as per above.
8Source: United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. File 11b: Time Series of the Population of the 30 Largest Urban Agglomerations in 2018 Ranked by Population Size, 1950-2035
9Source: File 12 as per above.
10Source: United Nations, Department of Economic and Social Affairs, Population Division (2014). World Urbanization Prospects: The 2014 Revision. Final report: Table A.11. The 30 largest urban agglomerations ranked by population size, 1950-2030 (p 315)
11Source: File 12 as per above.
12Source: File 12 as per above.
13Source: File 12 as per above.
14Source: File 12 as per above.
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The information contained in this presentation has been compiled with considerable care to ensure its accuracy. But no representation or warranty, express or implied, is made to its accuracy or completeness. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
The information provided should not be considered a recommendation to purchase or sell any particular security. It should not
be assumed that any of the security transactions discussed here were or will prove to be profitable.
Martin Currie has procured any research or analysis contained in this presentation for its own use. It is provided to you only incidentally, and any opinions expressed are subject to change without notice. The opinions contained in this document are those of the named manager(s). They may not necessarily represent the views of other Martin Currie managers, strategies or funds. Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given.