Population Decline and International Exposure

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fatlever
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Population Decline and International Exposure

Post by fatlever »

I was listening to Bill Gates on Charlie Rose a few weeks ago and Gates was matter of factly speaking about world population peak and decline somewhat to the effect of "we now know that the world population will peak around 2050." I really wasn't aware of this and I did some googling and found several studies--the UN among one of them-- that indicate that the world population might peak at around 9.3 billion around 2050 and decline after that.

What does this mean for us that might still have a 20+ years of employment and accumulation left? I myself have a 30% international equity exposure. I just learned about investing in 2010 and a lot of index investing to be based on population growth and economies developing which result in more people having more money to buy more things.

I mention 30% international exposure because even before 2050 the outlook specially for developed international doesn't look good. I mean the populations of countries like Japan, Germany, Spain, Russia are about to fall off a cliff between now to 2050:
  • Japan is supposed to drop from 128 million to 108 million
  • Germany from 88 million to 66 million.
  • Spain from 47 million to 35 million.
  • Russia from 143 million to 108 million.
And of course China's course of demographic suicide is well known. To top this off it appears that that a greater and greater segment of the population will be senior citizenship who will be curbing consumption. The African continent looks like it will surge population wise but this probably means more political and humanitarian crises than investing opportunities.

I know we got a lot of smart people here and some that have been investing for a looong time but unless you lived through the black plague in Europe, you can't have experienced this in your investing lifetime so please it'd be great to have something other than "stay the course" responses.

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xenial
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Re: Population Decline and International Exposure

Post by xenial »

Don't worry about it!
1. This information is well known and already reflected in securities prices.
2. Projections have an uncanny way of changing. When I was a kid, the unrelenting exponential growth of the world's population was considered somewhat of a crisis.
Call_Me_Op
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Re: Population Decline and International Exposure

Post by Call_Me_Op »

fatlever wrote: What does this mean for us that might still have a 20+ years of employment and accumulation left?
In my opinion, it means nothing - for two main reasons. The first is that these are just guestimates. The second reason is that such guestimates are widely bandied about and anyone who would adjust their portfolio in response to them has already done so. The guestimates will evolve over time and some people will continue to take action based upon them. This should not impact one's investing strategy one iota, in my opinion.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
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papito23
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Re: Population Decline and International Exposure

Post by papito23 »

Even if these trends do play out, it's hard to draw a direct line to the performance of the underlying investments. I would worry about things you can control and reasonably predict. I've followed these debates for 10 years, and neither economists nor environmentalists know the future. That is one reason I hold 40% of my equities in Total International Stock.

Will these countries allow immigration to make up the difference?
Will automation (robots) make up the labor shortfall?
Will a decreased human population free up more resources?
Will a war on American soil send millions scampering to Europe?
Will a new pandemic emerge in Africa and reduce the population?
Will an asteroid hit China?

I see no reason why our standard of living could not be maintained or improved even as population declined. I would love to see that (re-wilding large portions of the earth), but I probably won't live long enough to.

I also wondered if we all might become so wealthy that we could all retire. There is a fallacy to that thinking. William Bernstein has a neat thought experiment about a very simplified island economy. (link). Quote: "If you want to retire early, what matters is not how much you save, but how much more than everyone else you save. In a world where everyone saves as if they’re going to retire at fifty-five, or even at sixty-five, none can." Time will tell!
A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise. -Aldo Leopold's Golden Rule of Ecology
steve_14
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Re: Population Decline and International Exposure

Post by steve_14 »

Your concern seems to be a distant, uncertain decline in global corporate profits due to demographic changes that markets have somehow failed to price in.

The good news is, market have certainly priced this in, and in any case distant, uncertain cash flows don't count for much when deriving current valuations, since they're so heavily discounted.
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Svensk Anga
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Re: Population Decline and International Exposure

Post by Svensk Anga »

My understanding of the basis for the predicted population peak and decline is that birth rates fall as populations get wealthier. When people are wealthier, childhood mortality drops and it is no longer necessary for a woman to bear 5 or 6 kids to have a decent chance of a couple surviving to adulthood. Birth rates naturally tend to fall to about replacement rate, maybe a bit less. Without all those short-lived babies around, average age goes up. The wealthier people consume more compared to their predecessors who were on the edge of survival. That is, much of the underdeveloped parts of the world will be undergoing a transition like from where Europe was a couple hundred years ago to something approaching modern developed country standards of living.

It is unclear what this means for a long term investor. Will resources be strained to hyper-inflation or armed conflict territory? Will an emergent huge world-wide middle class bring prosperity to companies that can serve diverse markets? There is a huge uncertainty as to how this will all play out.
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3CT_Paddler
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Re: Population Decline and International Exposure

Post by 3CT_Paddler »

Invest in international markets anyway... or don't. Nothing is certain.

Imagine its 1914, and you are trying to gaze into the crystal ball and figure out what countries you should invest in based on projected trends in 1950... its a fools errand. If people knew all that would happen in the 1930s and 1940s, they would have told you to put your money in the ground... and yet they would have been wrong, despite how difficult those times really were.

I look around the international scene and I see billions that will be joining the ranks of the middle class over the next 80 years. Technology is allowing people to interact across oceans for pennies. That sounds like a great opportunity to me to invest internationally in companies that provide goods and services to these new markets.

And even if the world population stabilizes, that likely means a growing global affluence, which is a good thing for those who invest capital. World wars, disease, natural catastrophes could change all that, but you could have said that same thing almost a century ago.
steve_14
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Re: Population Decline and International Exposure

Post by steve_14 »

Svensk Anga wrote:My understanding of the basis for the predicted population peak and decline is that birth rates fall as populations get wealthier. When people are wealthier, childhood mortality drops and it is no longer necessary for a woman to bear 5 or 6 kids to have a decent chance of a couple surviving to adulthood. Birth rates naturally tend to fall to about replacement rate, maybe a bit less. Without all those short-lived babies around, average age goes up. The wealthier people consume more compared to their predecessors who were on the edge of survival. That is, much of the underdeveloped parts of the world will be undergoing a transition like from where Europe was a couple hundred years ago to something approaching modern developed country standards of living.
Already happening, from Thailand to Mexico. I don't think infant mortality rates have much to do with it - mainly the liberation of women, economically, educationally and otherwise.
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Re: Population Decline and International Exposure

Post by larryswedroe »

http://seekingalpha.com/article/2070033 ... ly-destiny

Try this, demographics are not destiny when it comes to stock returns
lloydbraun
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Re: Population Decline and International Exposure

Post by lloydbraun »

First, the UN actually predicts that the overall population will keep growing after 2050 and will reach 10 billion by 2100. Second, these are merely projections. The Economist had an article two weeks about African population growth and the conclusion was that population growth in many African countries is already diverging from projections made only several years ago.
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Re: Population Decline and International Exposure

Post by Valuethinker »

fatlever wrote:I

And of course China's course of demographic suicide is well known.

[/quote]

Oh the presuppositions in what you write.

'China's course of demographic suicide'. Actually, anything but. The 'demographic dividend' is why they have had the most explosive economic growth (sustained) in human history over the last 2 decades. And there are 1.4 billion let's write that ONE POINT FOUR BILLION Chinese people. They are not running out anytime soon. Granted the one child policy was probably extreme. But they had real concerns about resource availability and food scarcity, and they did something about it. And with 1.4 billion of them, Mandarin is going to remain the world's most popular language for a long time to come.
To top this off it appears that that a greater and greater segment of the population will be senior citizenship who will be curbing consumption.
And the fastest growing sector of the US economy for the last 15 years? Healthcare. And the major consumers of healthcare are? Seniors.

Also travel. Senior friendly leisure and housing.

There probably is some correlation between declining consumption of, for example, cars and furniture etc, and an older population. But there are other ways to spend money. The world is in any case a long way from the scenario of declining population, although that may, as in the case of Japan, cause a reduction in economic growth.

Depending on immigration one can be pessmistic about Germany, Spain, Italy, a few other western countries (the US will likely have something like 450 million people in 2050 assuming a continuation of 1% pa population growth, say 50% by natural accumulation and 50% by immigration). The world as a whole? Well not this side of 2050. Just raising the standard of living of the other 6 billion who don't have anything resembling a developed country standard of living is an enormous task.

The African continent looks like it will surge population wise but this probably means more political and humanitarian crises than investing opportunities.
Ghana is on breakthru to being a middle income country. Nigeria? The place looks ever so much like India 40 years ago. One can see what is so very wrong with Nigeria (corruption, poverty, infrastructure, crime etc.) and yet, and yet, the people are amazing in their entrepreneurship and their drive.

Kenya. 15 years ago they had something like 20,000 mobile phones. Now? Over 10 million. The impact of things like cheap solar power in Africa hasn't even begun to be fully felt.

Lots could go wrong in Africa. It has before. But the place is transforming at a phenomenal rate. Roads are being built. People have bicycles. Internet access. Mobile phones. Farmers checking market prices via their phones, and banking via their phones.
I know we got a lot of smart people here and some that have been investing for a looong time but unless you lived through the black plague in Europe, you can't have experienced this in your investing lifetime so please it'd be great to have something other than "stay the course" responses.
Well efficient markets says 'stay the course'. So if you believe in efficient markets then all of this is already priced in.

"lived through the Black plague [sic: you mean the Black Death or the bubonic plague] in Europe". Actually the 2 events are nothing like. One is a long slow thing, visible decades ahead. The other killed 30-40% of Europeans in 2 years. 50% in some countries. The closest event in modern history (other than WW2 and the Great Leap Forward in China (1958-60) and the Famine in Stalin's Russia (early 1930s)) was the Spanish Flu of 1919. Probably c. 2% of the world population died.

So really it's a completely different story. With very different consequences.

Quite frankly, the real issue with 10 billion people is that if they all consume like Americans, or even Western Europeans, then we've finished the planet off for human habitability (at these levels of consumption and emissions). So just to raise everyone up to say the level of Costa Rica, we are going to have to be very clever about what we do and how we do it.
Last edited by Valuethinker on Sun Mar 16, 2014 4:27 pm, edited 1 time in total.
Valuethinker
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Re: Population Decline and International Exposure

Post by Valuethinker »

lloydbraun wrote:First, the UN actually predicts that the overall population will keep growing after 2050 and will reach 10 billion by 2100. Second, these are merely projections. The Economist had an article two weeks about African population growth and the conclusion was that population growth in many African countries is already diverging from projections made only several years ago.
Africa (parts of) and the Middle East are, so far, the exception to the rule that rising prosperity brings falling family size and population growth. This may be the impact of religion in part.

But even that's not clear. Iran's birthrate has plummeted. Not coincidentally, it has the highest level of female literarcy in the Middle East.

As you note, relatively small changes in assumptions or conditions cause *huge* differences in final population outcomes. It's not an exact science.

My own thought is that given what is happening with antibiotics, world population might well cap out but due to disease and shortened lifespans. And the possibility of the superplague. With the globalization and an ability to move around the world in 48 hours, a future super bug could infect most of the planet before we knew what hit us. David Quammen wrote a good book about this, the prospect of zoonose (that jumps from animals to humans) against which we have no immunity is something we really have to consider.
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ERMD
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Re: Population Decline and International Exposure

Post by ERMD »

there are teams of financiers who sit around desks and computer screens all day thinking about what the world is going to look like, demographically and economically, in the next 25, 50, 100 years. that information, like everything else, is built-in to the price of international equities.
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fatlever
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Re: Population Decline and International Exposure

Post by fatlever »

Thank you everyone for your responses.

Funny what really led me into this rabbit hole was the fact that international is lagging :oops:
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Re: Population Decline and International Exposure

Post by Valuethinker »

fatlever wrote:Thank you everyone for your responses.

Funny what really led me into this rabbit hole was the fact that international is lagging :oops:
But you are missing the forest for the trees.

Whilst demographics have a definite impact in Japan (but note they now have a current account deficit, for the first time in 40, 50 years?). They are probably having an impact in Italy, and will come to do so in Germany and Spain.

Demographics are a very long term thing. The effects are subtle and not fully understood. Seniors consume differently than younger people, but they still consume (healthcare! travel).

But what's happening right now is about failure to recover from recession-- structural issues re the Euro, Japan's endless slump (Abenomics may be helping that), plus China and EM slowing down. The US is ahead of other countries in its economic recovery-- first in, worst in (almost) and now coming out (sort of kind of we hope). That plus the availability of cheap money has buoyed US asset prices.

Also the US has the largest tech sector, and it's been in tech where you have seen continued growth. There are probably 6.8 billion or so of us who have yet to buy an iPad or its Samsung equivalent-- and in the next 20 years, we probably will (well 2 billion of us will). To post pictures of our cats on Facebook ;-).

History says there will be periods when US stock market is ahead, and periods when it lags.
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Re: Population Decline and International Exposure

Post by Stonebr »

steve_14 wrote: The good news is, market have certainly priced this in, and in any case distant, uncertain cash flows don't count for much when deriving current valuations, since they're so heavily discounted.
I think you are taking this market efficiency idea way too far. Nobody at those big investment houses is thinking much past next quarter's earnings.
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Re: Population Decline and International Exposure

Post by bobbun »

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Re: Population Decline and International Exposure

Post by Quickfoot »

I think you are taking this market efficiency idea way too far. Nobody at those big investment houses is thinking much past next quarter's earnings.
Not true, individual Americans that is true for, actual investors and the people driving the funds do. Unfortunately they are hamstrung by people that want returns today. Any company that focuses solely or mostly on next quarter will be out of business within a few years.
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Re: Population Decline and International Exposure

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