Brave new world - the millennial effect

Millennials will continue to re-shape the economy with their distinct spending habits and preferences; they will have a deep and long-lasting effect on businesses and financial markets.

Sat, Aug 08, 2020

James Ashley
Laura Destribats


THE smartphone-wielding, athleisure-wearing and environmentally conscious generation known as the millennials has re-shaped the global economy with their distinct spending habits and preferences. Millennials, referring to anyone born between 1980 and 2000, account for roughly 2.3 billion or 30 per cent of the world's population, and is one of the biggest demographic waves in history.

As they become the global economy's main source of wealth and spending, this generation's distinct characteristics and preferences will provide sustainable investment themes. Hence, a critical driver of equity alpha generation in the years ahead will come from finding companies that can capitalise on millennials' consumption patterns. Companies catching on to the millennial effect can be identified across sub-themes such as tech-enabled consumption, infrastructure, health and wellness and sustainability.

What makes a millennial?

Millennials are the first generation of "digital natives"; they have grown up in a world where digital technology and the Internet are ubiquitous and critical to daily life. This constant access to information helps shape the way millennials think, communicate, and make decisions.

Millennials have lived through four significant economic events - the dot-com bubble, the 9/11 crash, the Great Financial Crisis and now, the Covid-19 pandemic. It is likely that these events have a formative impact in shaping millennials' views of how the global economy works. Millennials bring with them an element of disruption and are highly differentiated from the broader global population. Every generation before has had its own unique markers - baby boomers grew up after the Second World War and lived lives of abundance, buying houses in their early twenties and settling down with their families, while millennials have a preference for tech-enabled consumption, health and wellness, experiences, and a greater focus on sustainability .

The magnitude of this generation's purchasing power itself is tremendous but they also have very distinct spending habits and preferences, making them an incredibly important influence on businesses around the world.

Millennial-themed investment

Global demographics have always played a pivotal role in economic growth. With the majority of millennials entering the workforce, their growing aggregate income and defining generational characteristics will increasingly impact businesses and markets.

Along with their incredible spending power, millennials have also brought a new kind of investment to the table. No longer do investments focus solely on properties or businesses, for example. Millennials invest in different aspects of life - such as environmental sustainability, health and wellness, technology ecosystems, and prioritise experiences over material possessions. A growing emphasis has been placed on technology ecosystems and tech-enabled consumption such as storage and data services, mobile technology, big data, and social media. On the health and wellness front, millennials are highly focused on fitness, which benefits businesses in athletic apparel, wearables, digital fitness, and organic food and products.

Speed and accessibility are where millennials thrive, and this is where investments are headed. As a point of reference, when cars were invented, it took 62 years for 50 million people to have access to one. When WeChat was launched, it took just a year to reach the same target. By 2025, an estimated 75 per cent of the workforce will be made up of millennials, and investments should be geared towards their values. Tech-enabled consumption is moving at an incredible pace, presenting plenty of investment opportunities for companies and individuals willing to align themselves with millennial values.

As the most powerful consumer force that the world has ever seen, companies have aligned themselves with what millennials care about: Healthy food deliveries are packaged in sustainable, recyclable containers; gyms and yoga studios promote free trials through social media platforms. This brings about an attractive investment thesis as we are now able to invest in a more unconstrained way than before, and focus on the corporate beneficiaries of this theme, while avoiding businesses that would be disrupted as a result.

Covid-19's impact on generations

There are no winners when it comes to a global health pandemic, but perhaps millennials will be the ones who are least affected. There are some tough times ahead, and that is why we think it imperative to ponder hard about some of these secular changes that were already underway pre-Covid-19, to think about how the virus might have amplified them further, and to think about the positives such as the investment opportunities created. Given the crises that they have already been through, the millennial generation's resilience has set them in good stead.

Covid-19 has exposed, and imposed, consumption patterns and behavioral traits that were previously exclusive to the millennial generation onto members of other generations. The crisis has forced older generations to experiment with new technologies and new behaviours - people using online grocery shopping for the first time instead of going to the supermarket, setting up a subscription to online streaming services rather than going to the cinema, using online educational tools for the first time instead of attending college.

Disruptive companies catering for such preferences are now tapping into new market segments across other age groups that they might otherwise never have found reachable. While many of these individuals will revert to their pre-Covid patterns, we do expect some of these behaviours to endure long beyond the pandemic as individuals recognise the convenience they bring about.

Even if the road to recovery for the economic landscape as a whole may be arduous, the fallout from this crisis will certainly benefit companies relying not just on technology, but on innovation and disruption more generally.

Market outlook

Within the millennial market, we are constantly seeing new opportunities and trends to leverage. We believe millennials will have a deep and long-lasting effect on businesses and financial markets.

In our view, an active, bottom-up approach to find fundamentally strong companies is critical. We believe both local insights and a global investment capability are important to capitalise on this generation's growing influence. The focus is to identify companies best exposed to the sub-themes discussed, while ensuring that we are investing in quality businesses at attractive valuations. Strong balance sheets, good return on invested capital, and resilience to deal with future disruptions are some qualities we look out for.

The millennial effect will undeniably be a secular growth tailwind and differentiator for specific sectors and companies, particularly in the current environment of an unexpected and unprecedented pandemic like Covid-19. While the post-Covid recovery will be gradual, we are already starting to see improvements. As everyone slowly eases back into the Brave New World post-Covid, the millennial effect will continue to re-shape the economy in the midst of all of this volatility.

James Ashley is head of international market strategy, GSAM; and Laura Destribats is co-lead portfolio manager, global millennials equity strategy, GSAM