Demographic change and market disruption
At the recent Russell Investments institutional summit, we were delighted to welcome Patrick Kaser of Brandywine Global and James Johnstone of RWC Partners to share their perspectives on market trends and, specifically, the implications of demographic change for investment programs.
Patrick’s investment focus is on the U.S. and James’ on frontier markets. In both of these areas, the impact of demographic change – fertility; aging; migration – is significant, even though the impact varies across different markets.
In the U.S., the implications of an aging population have been widely discussed, but migration, too, is a big factor. The U.S. is more open to immigration than most developed economies, and has been more successful, too, in assimilation; the second generation is more likely to regard themselves as American. Medium-term global migration patterns, however, are unpredictable.
Also notable in the U.S. context is the changing role of women in the economy: 60% of those graduating college in 2015 were female and 25% of registered voters in the 2012 election were single women.
And the demographic change is even more dramatic in many other markets. It remains too easy to take for granted things that may no longer be true. Some big leaps forward have been in places you might not have expected: massive progress in school enrollment (both boys and girls) in Bangladesh and toward nationwide public broadband WiFi coverage in Rwanda are just two of the notable developments. James pointed out, too, that while income inequality within countries has grown in recent years, it has become smaller between countries, as the poorest nations have seen faster growth.
China’s emergence as the world’s second largest economy is taken for granted today, but would be astonishing to an observer in 1980, when China’s GDP was less than that of the Netherlands (despite a population seventy times as large.) China’s massive demographic change is far from over: by 2050, it is likely that 35% of the Chinese population will be over 60 years old, a huge shift.
The implications of change
Demographic disruption is not new, of course. And while an understanding of the big trends that are transforming economies and markets is a necessary input to any effective investment process, it is not enough on its own. Working out exactly how that transformation will impact investment markets is where the skill and insight of investors is really put to the test. There are always new surprises just around the corner.