First off, the disclaimers: This is not investment advice and should not be taken as such. This is my personal musings, and my attempts to understand the investing environment in 2023, and the implications of that environment.
Demographics set the stage for 2023
Demographics are a tricky subject, and the ramifications on the global economy can be pretty long-lasting. As birth-rates drop in developed countries, they look at immigration and tax policies to stabilize and continue to grow their populations. A slowly growing population ensures that there are both productive workers, a cheap workforce, taxes are being paid, and the elderly and children are being supported.
The absence of a significant number of children can wreak havoc on a country and has multi-generational impact (see the aging of Japan for example, or the implosion of Korea’s working population in Seoul for another). China is another example of demographic shift.
The overstating of the Chinese population as a result of the one-child policy means that there are not only millions of less people, but all those imagined people won’t have children or grandchildren. A significant part of the work force will be missing and the forces (namely cheap labor and low environmental consideration) that has kept China’s economy on a dynamic ascent can no longer be supported.
Fortunately (for Americans at least) according to Peter Zeihan’s book “The End of the World is Just the Beginning” the United States has a relatively positive demographic profile and has the ability to “cheat” by attracting the best and the brightest from all over the world for a crack at the American dream. And if that wasn’t enough, it has the ability to source cheap labor from Mexico or place low-margin manufacturing activities in Mexico for an extra margin of safety.
Population growth continues in total number, but the growth rates vary greatly from country to country and continent to continent. Another challenge is for developing countries which have an awareness of and a appetite for technological, chemical and industrial products that they don’t have the capacity or knowledge base to make themselves. Multi-national organizations will be happy to provide services, products and infrastructure – for a fee of course. The smartest countries will require local capacity be built, local staff developed, and local enrichment for a long-term partnership to develop.
Investing Take-Away
- Regionalism takes over as the global economy that we have enjoyed for 20+ years changes, and trans-world supply chains and manufacturing is no longer reliable.
- Countries who have good demographics and geography (especially for food) have economic tailwinds (USA, Mexico, Indonesia, France).
- Countries who have rough demographics and geography (especially as related to food production) will have a rough time (think Germany, China and Egypt).
- Countries with quickly growing populations have high expectations for quality of life and product availability, often without the capability or expertise to produce those products / services locally. They will be consumers rather than producers of products unless they take proactive action, invest in their local populations, and require local investment.
- Ask where will the people be in 2023-2033? Those will be the growth markets. For example, Siemens AG is building Egypts public transportation system to help handle the quickly growing population.
- People need to eat and people need shelter. Agricultural stocks (Deere) will be good to consider as will construction stocks (CAT) and commodities (like iron for buildings – RIO, FCX).