|  Richard Cragg has over 30 years ' experience in investment, spanning financial centres in three continents, and has consistently been at the forefront of opening up new and emerging markets to investors. Books The Demographic Investor , FT Prentice Hall, 1998 Demographic investment -
Crisis equals opportunity . Almost forty years of falling birth rates coupled with rising life expectancy have created ageing populations throughout the developed world. Economists predict serious consequences in the decades ahead: -
- Declining workforces, leading to slower output growth and wealth creation. -
- Fewer workers supporting more pensioners, leading to steep rises in taxes and National Insurance to pay for rising state pensions and health provisions - or a decline in expenditure on them. Demographic investment techniques provide the tools to turn this emerging crisis into an investment opportunity, enabling investors to devise long term pension strategies that actually benefit from ageing populations. In conjunction with other screening tools, it can help select which countries and sectors offer the best growth. -
Manners maketh man, but money moveth markets. Only buying and selling move share prices. Whether money is invested directly or via mutual funds and pension schemes, it has first to be generated in the form of discretionary income - what's left after paying for the house, the car and family outlays on food, clothing etc. - and this depends on your age. -
Some age groups can save more than others. As individuals move through life, their earnings and consumption patterns change markedly over the years. Until their first job, they are significant net consumers, and while earning capacity might then rise substantially until their mid-40s, their savings generally do not, since they have acquired partners , children and mortgages in the meantime. By their mid-50s however, despite a marked slowdown in wage growth, their discretionary income takes a Great Leap Forward, as the mortgage is paid off, school fees finish and the kids leave home. This age group is also likely to receive sizeable legacies from their parents. It is the growth of the 45-55 age group relative to the young and elderly dependents that determines changes in a population's discretionary income. -
Goldilocks demographics - not too young, not too old. What constitutes an ideal age profile? A country where both the workforce and the proportion of 45-55 year-olds is growing rapidly but the proportion of retirees is small relative to the workforce and not growing rapidly . Choose your countries carefully , because your pension depends on it. If you choose Japan, you'll be working until you're 100. -
Surfing the demographic waves. Demographics allows us to project population breakdowns for 20 years into the future with a fair degree of accuracy, enabling investors to switch from a country where savings growth is slowing into one where the savings wave that will power the next market boom is building. -
A demographic road map. Japan's demographic wave crested a decade ago and is still in decline. Germany and Italy become similarly dangerous after 2005, the UK and France after 2010, and the US after 2015. But the big bet from now to 2020 is China, where collapsing birth rates will create a huge bulge in the proportion of 45-55 year-olds. -
Selecting the sectors. In a world where annual births are static, you won't make your fortune investing in baby clothes companies. Follow the growth age groups; they're buying holidays, hollyhocks, healthcare and hearing aids. If you can select consumer items that are in growing demand from an ageing population but are benefiting from new technologies (digital hearing aids) or patent protection (drugs for diabetes, osteoporosis, cancer and heart disease), you should do well. rcragg@nclinvestments.com |
