“If all the Chinese in the world were to march four abreast past a given point, they would never finish passing, though they marched forever and ever.” —Ripley’s Believe It or Not, 1910
The International Monetary Fund (IMF) says China’s population will top 1.4 billion sometime in 2019, about four times that of the U.S. But for investment opportunities, what matters is not population levels, but population growth.
In sharp contrast to the graying U.S., many emerging market nations have youthful demographics, but that’s not always the case. For example, Russia’s population has dropped by 5 million since peaking at 148.4 million in 1993. You’ll find a similar trend across the former Eastern bloc. For perspective, the U.S. population grew by 63 million during that time frame.1
Demographic malaise typically happens when there is something structurally deficient inside a political or economic system that causes early deaths, a lack of births and emigration. It happens when young people find little opportunity at “home” and opt to try their luck in foreign cities. It happens when there is some sclerosis, likely stemming from a kleptocratic state, that crushes the confidence that young people need to enthusiastically bring babies into the world.
And it happens when investment prospects are crushed.
Population Growth: An Asset Allocation Metric
Using IMF data for China, South Korea, Taiwan, India, Brazil, South Africa, Russia, Mexico, Indonesia, Malaysia, Thailand and Poland, we assessed a country rotation strategy using a basket of nations that currently make up 89% of the MSCI Emerging Markets Index (MSCI EM).2
Figure 1 breaks out performance for three equally weighted investment baskets comprising stocks in countries that were ranked #1–4, #5–8 and #9–12 in the 12-nation study, hereafter referred to as the Lowest, Middle and Highest population growth groups.
