EZA 664: Strategy Report - Demographic Trends

03 January 2005

Demographic trends in perspective and the conclusions for the economy, capital markets and asset allocation
Advanced countries now one generation after the peak of population boom, one and a half generations away from completion of the ageing cycle Emerging economies following the same trend Demographic window will close rapidly in advanced countries over the next decade. Decline in fertility may be amplified by qualitative aspects like sharper fall of birth rates among highly educated individuals Reversal of growth-friendly trends most obvious in Japan, with GDP growth falling by 0.9%, less pronounced in Europe (-0.5%) and relatively modest in the US (-0.25%) generally lower savings in advanced economies, but contingent on pension reforms. Asset meltdown unlikely, stocks may under perform relative to previous experience, not necessarily relative to bonds Age-specific holding of asset classes - overweight bonds not a foregone conclusion

SummaryWe are at a key juncture of demographic transition with a switch from growth to ageing. This implies different time horizons with short, medium and long term cycles as well as individual behaviour which differentiates itself by age groups, regions and regulatory frameworks. In terms of asset allocation it means a move away from thinking in directional terms towards the systemic behaviour of individuals and markets.

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© Graham Bishop