May 29, 2017
Larry Berman: Why demographics is the most important contributing factor to growth
By Larry Berman
The World Bank estimates that total world population was about 7.43 billion at the end of 2016. By 2050, the world will have about 9.71 billion people. That is an annualized 0.79 per cent natural growth rate. Productivity, the other main factor of growth, has been running about 0.5 per cent for the OECD (mostly the developed countries) the past decade down from 1.8 per cent over the past 50 years. If you add those two factors together, you get a natural rate of world global growth in the 1.3 per cent range. Not bad, but far less than half of the past 50 years. Why?
Simply, when you first build a road, you get a huge economic benefit for years to follow. When you have to spend money to fix the road, you do not (other than the job it creates for the day it’s being fixed).
In the emerging world, the growth rates are driven by population and productivity. Sub-Saharan Africa will likely have massive growth rates for decades to come. Do you invest in the developed world countries that will service that growth or in the domestic companies? The answer is probably both. I’d love to see a global ETF driven off demographic trends. I’m working to get one created. But until then, here are a handful of ETFs worth watching and buying on pullbacks. Broadly, buying the biggest, most diversified ETF for emerging (EEM) and frontier markets (FRN) will help get diversified access, but the biggest parts of emerging markets, China and India have very different outlooks from a demographic perspective.
The following table highlights some of the key trend to watch out for:
Key Demographic Trends
| Region | 2016 (Billions) | 2050 | Ann. Growth Rate |
|---|---|---|---|
| World | 7.43 | 9.714 | 0.79% |
| India | 1.327 | 1.705 | 0.74% |
| Sub-Saharan Africa (SSA) | 1.028 | 2.21 | 2.28% |
| Middle East & North Africa (MENA) | 0.432 | 0.648 | 1.2% |
| China | 1.378 | 1.337 | -0.09% |
| Canada | 0.0362 | 0.0436 | 0.55% |
| OECD | 1.29 | 1.41 | 0.26% |
All the African ETFs tend to be far too overweight South Africa, which I’m not as excited about. NGE.N (Nigeria) is one to watch for sure. AFK.N, might be the best to watch in the region, though it is still 33 per cent in South Africa. India (INDA.N, SCIF.N, ZID.T) are the best to watch for that region.
My long-term strategy here is to buy into corrections. These regions are higher risk areas and despite the longer-term bullish growth outlook, they are higher risk investments.
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