As Baby Boomers begin to retire and sell out of stocks, the willingness of a counter-party to buy those securities will be critical to the price they will command—and the well-being of those Boomers in retirement, The Sacramento Bee reports.
Enter China. If the government eases its capital markets to allow citizens to invest abroad, the Chinese could be one of the biggest purchasing blocks of those stocks.
Jeremy Siegel, Wharton professor and author of “Stocks for the Long Run,” has said that the $6.5 trillion that Boomers hold in stocks and bonds could fall 40% in value if buyers don’t step up to the plate from nations outside of the U.S.
China, the world’s fastest-growing large economy, is now trying to build a 401(k)-like pension system for its people, and has a strong reason to look to invest in markets in the U.S. In fact, because it would benefit the U.S., the Labor Department recently announced that it will help China create a defined contribution-type retirement program.
“The savings and buying power of the developing countries is absolutely critical to our own welfare in the future. When all the Baby Boomers try to sell their assets, there are not going to be enough workers in the developed world alone to absorb them,” Siegel said.
“The demand that would be coming from Asia and other developing countries will be critical to support the prices of these financial assets,” he added.
In China, the Boomer population will be retiring after the Boomers in the U.S.; by 2040, about 30% of China’s population will be 60 or older, whereas in the U.S., the first wave of 61-yaer-old Boomers is beginning to take early retirement. In 2011, they’ll qualify for full retirement benefits.
Many in China are optimistic that the nation will successfully build out its capital market, now in its infancy, offer defined contribution plans to its citizens and permit investors to place their money overseas.
“Ten years from now, I can see a scenario where Chinese investors get to put some of their nest eggs overseas,” said Fu Teh-Hsiu, chief executive officer of Everbright Pramerica Fund Management, a joint venture between Everbright Securities of China and Prudential Financial.
But Fu said he doesn’t expect foreign investments to be very large at first. “The floodgate is going to be opened very, very slowly,” he said.