Demographics Trends and Investing – A case of the “ Land of the Rising Sun “


From Tree to Kite 


A report compiled with the Japanese government’s co-operation few years ago warned that by 2060 the number of Japanese will have fallen from 127 m to about 87 m, of whom almost 40% will be 65 or older.  

The 2012 government report said that without policy change, by 2110 the number of Japanese could fall to 42.9 m, i.e just a third of its current population.


Japan's population had shrunk by almost 1 million people in five years. The country lost 947,345 people – more than the population of San Francisco – between 2010 and 2015.

The decline of 0.7% to 127.1 million has been predicted by the government annually but the new statistics confirm the trend. It is an indication that as the nation gets older, and people have fewer babies at a later age, a demographic crisis is looming.

Japan has been worrying for a while now about whether its population may one day become extinct. In 2006, the Japanese National Institute of Population and Social Security Research predicted that by the end of the present century, the population would decline to about 50 million, falling further to 10 million by the end of the next.


An article published by “ Business Insider “ mentioned that : “By 2350 just 1 million would be left, and by the year 3000 just 62 people would be rattling around the Land of the Rising Sun. (Perhaps by then we will be living underwater). “


<Image credit : Theconversation.com>





“Neither current nor projected population decline is unique to Japan. Many East Asian societies are forecast to encounter rapid decline over the coming centuries. A similar exercise to that of Japan was published in South Korea, with the rather more generous assumption of 10,000 Koreans left by 2503.”

So how worried should we be about this? Classical approaches to demography and economics, which see population size as critical to gross-domestic-product growth, would suggest we should be very concerned. This is multiplied by the link to population aging. This is often referred to as a "time bomb" in terms of its effects on both economic growth and the sustainability of social security and health and social care systems.


A shrinking population is definitely a concern from political and economic point of view. 

Well , this is not a forum to debate the right or wrong if Singapore should have 6.9 million population by 2030 or even 10 million as proposed by ex-HDB Chief Mr. Liu Thai Ker.





‘No worries’: PM Shinzo Abe says Japan’s shrinking population not burden but incentive”

Prime Minister Shinzo Abe said Japan’s ageing, shrinking population was not a burden, but an incentive to boost productivity through innovations like robots, wireless sensors, and Artificial Intelligence.
Abe’s comments on Wednesday ( 21st September 2016 ) came days after official data showed that Japan has 34.6 million people aged 65 and older, or 27.3 per cent of the population – the highest proportion among advanced nations
“Japan may be ageing. Japan may be losing its population. But these are incentives for us,” he said.
“Why? Because we will continue to be motivated to grow our productivity,” Abe added, citing robots, wireless sensors, and Artificial Intelligence as among the tools to do so.
“So, Japan’s demography, paradoxically, is not an onus, but a bonus.”





Not all are shrinking !! Some countries still enjoying the “ demographic dividend “


Concept explained : “ Demographic Dividend “ by Wikipedia 


Demographic dividend, as defined by the United Nations Population Fund (UNFPA) means, “the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).” 
In other words, it is “a boost in economic productivity that occurs when there are growing numbers of people in the workforce relative to the number of dependents.” UNFPA stated that, “A country with both increasing numbers of young people and declining fertility has the potential to reap a demographic dividend.
Due to the dividend between young and old, many argue that there is a great potential for economic gains, which has been termed the "demographic gift". In order for economic growth to occur the younger population must have access to quality education, adequate nutrition and health including access to sexual and reproductive health

For example, Indonesia is anticipating a demographic dividend or demographic bonus that is expected to occur in 2020-2030. A demographic dividend is when the proportion of people in the productive age group (15-64 years) reaches a maximum and the dependency ratio is at its lowest level

A very good write up on “ Demographic Dividend “ from IMF : LINK







What will be the impact of Demographic Trends for Investment ?

According to Investopedia : “Demographic changes in the United States and elsewhere have major implications for investment risks and returns. The combination of ever declining birth rates and the ever-increasing numbers of pensioners could have disastrous consequences for pension schemes and wealth creation. Therefore, any portfolio should be constructed with rapidly and substantially aging populations in mind. “

A study by researchers at Yale and the University of California indicates that population shifts can have a significant on investor behavior and equity values. The study says population estimates are relatively reliable and the group that generally invests the most (the older generation) will move increasingly into retirement and out of equities.

However, other research suggests that demographic trends only explain approximately 50% of equity values. There is evidence that the link between demographic trends, capital stock and equity trends is foggy. 

The Global Aging Initiative in Washington points out that "there has never been such a situation before", and predictions cannot be based on historical data. Also, it may be possible that expectations of such trends are already factored into equity prices.


In any event, these demographic trends not only create risks, but also opportunities. A clear implication is that investors may want to focus on 
emerging market economies and regions where demographic trends differ from those back home.

Still, there will be winners such as companies that provide a variety of cost-effective services to elderly people and pensioners. These services extend from medical treatment, home-care, travel and anything else focusing on that specific target market.

It is difficult to project prevailing demographic trends and their impact on future asset values. While no investor can accurately predict what the coming decades will have in store for the financial markets, there are few strategies to consider trying if you believe that the boomers' retirement could weigh on the marketplace.



At least for now , with shrinking population in Japan , I am wondering if old and aging population will go for shopping at retail mall ( Croesus R Trust ) , or playing golf as leisure ( Accordia Golf Trust ) , replacing it with Lippo Mall Reit might be a good idea ( as Indonesia is expected to enjoy the “demographics bonus in next 20 years ).


Shall I re-balance my portfolio or I am just  杞人忧( thinking and worrying too much which is beyond our control ) ? What do you think ?



Cheers !!






Warren Buffett doesn’t look at P/E ratios. He’s not a value investor in the classic sense. He bets on demographic trends. The most important investing quote he’s ever said is, “If a company will be here in twenty years then it is probably a good investment now.” By James Altucher




Remark of disclaimer: This is not to imply a recommendation or solicitation to buy or sell of any particular stock, please DYODD ( do you own due diligence ) prior using or acting on this information.


Comments

  1. Recent conversation with one of my Japanese friend who is mentioning that the " logistic and delivery " business seems thriving and flourishing now in Japan as more and more old folks are buying almost everything online without having to leave their home ,,,, good or bad ? Depending on which angle you are looking at the issue,, :h
    Cheers!

    ReplyDelete
  2. Great post on this important long term subject. Critical for any investor with a long term investment horizon.

    Demographics will make all the difference in the long run when comparing growth prospects among countries.

    I do prefer to invest in countries where more young people wake up in the morning and want to build a better life for themselves compared to countries where more old people wake up in the morning wondering how to spend their time. Older people hardly wonder how to spend their money. As a fact older people (above 60) do spend less money in the economy than the younger ones.

    ReplyDelete
  3. Hi Andy ,
    Yes! Indeed, demographic problem will not be feel immediately but the investors should take a much longer term of view as it will definitely affect the growth of any economy and their pattern of consumption in the long run ,,,, :)
    Cheers !

    ReplyDelete

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