A road map to grow your wealth in the tumultuous times ahead

Right on the Money

How can you invest for the long term when the road ahead is so unpredictable? To increase your chance of success I recommend that you overweight assets or sectors affected by future global drivers that present a high probability of happening. To determine the winning asset classes and sectors over the next ten years you first need to understand what will shape the global economy going forward. At Clover our research points to three key drivers that will define where to invest in order to grow your capital in the coming years. 

This month we will focus on the first key driver: world population. 

For every person that dies today more than two people are born. The world population now exceeds seven billion and at this pace we should pass 9 billion by 2040. The chart of UN projections and US Census Bureau historical estimates clearly illustrates the remarkable growth of the world populace over the last 200 years and what to expect going forward.  

Through this UN projection we can conclude, with a high level of probability, that whatever future scenario we use the population will grow by more than 25 per cent in the next 25 years. Therefore we should expect demand for food, energy and other commodities to continue to grow rapidly at least until 2040. 

Another characteristic of the world’s population is its unprecedented ageing. It is expected that by 2050 close to 35 per cent of developed countries populations will exceed 60 years of age. However developing countries do not present the same picture with less than 20 per cent of their population predicted to be elderly by 2050. Although the percentage is much lower the number of population is so gigantic in developing markets that it needs to be taken into consideration when investing. 

As the population ages it is evident that demand for health care services and funeral services will increase. We will revisit these opportunities in a later column.  

We should note that when allocating resources to capture the opportunities presented by global demographic changes each country may present a very different picture. As an example let’s review the situation for the second and third largest global economies, China and Japan. 

The two largest Asian economies exhibit huge disparities when it comes to the age of their population. China will maintain its working population over the next 20 year but Japan, over the same period, will see its workforce drop to 35 per cent and its elderly population explode. In China therefore we should expect the country to continue to pay for the rising percentage of senior citizens within society without much impact on the economy. Japan’s situation is unsustainable. The amount of workers providing taxes to the state will not be enough to support the humongous debt of the country and the financial pressures created by the retirees. The consequences for Japan will have profound implications on their public finance and currency. We recommend reviewing the demographic profile of a country before investing for the long term.  

The final aspect of world population that will shape the global economy over the next ten years is the emergence of a global middle class. According to Reuters, the world middle class will double by 2030.  

This may well be the most important driver for global consumption going forward. As the middle class grows, particularly in Asia, we will see demand for consumer’s goods increase. This will translate to more cars, more phones and more refrigerators sold than ever before. We can also extrapolate and state that today’s pollution problems are nothing in comparison to what we will be facing going forward. 

The global population is growing rapidly, it is also ageing and we are witnessing the emergence of a true global middle class. These important demographic changes will have a significant impact on our life and on the world economy during the next twenty-five years. Demand for many commodities will continue to grow whilst supply may start to contract. Countries will emerge or collapse under the weight of their population profile. Energy should remain in high demand and pollution may become a major source of headaches. For a capitalistic investor this presents unlimited opportunities to make money. No need to call where the Dow Jones is going to increase your probability of gains, just invest where growth will be. Next month, we will look at the second driver, world debts.