Author: Stephen Tunley - CEO Balmain Funds
Forget climate change, a bigger demographic transformation is
upon us and will bring far-reaching consequences to investors. Balmain
Corp investigates how demographics in China vs Japan and Australia’s
aging population will impact on your investments.
Japan’s stock-market and property boomed in the late 80s
before peaking in 1989 and 1991 respectively. This was a time when its
working age population represented the bulk of the country’s population.
It was a time of ‘The Japan that can say no,’ a widely reported essay
about the successful rise of the Japanese way of business and a critical
examination of US business practices.1
The chart below shows Japan’s population pyramid in 1990.
Note the relatively small number of children and elderly compared to
workers aged 20 – 60, meaning revenues from workers did not have to be
spent on raising the young or looking after the elderly. It was a time
of prosperity, a time when Japanese firms and pop-stars bought hotels
and properties in Australia.
It’s been downhill for Japan since then.
FIGURE 1: Japan - 1990
Population (in millions)
Now take a look at China’s population pyramid in 2010. It
looks very familiar? Today is China’s time in the sun, with a booming
property market, outward investments, and trade surpluses. (Although its
stock-market is only half of its peak in October 2007.) Today, China’s
demographic is remarkably similar to Japan in 1990 but with a more
pronounced bulge in its working population, suggesting even greater
current prosperity for the nation.
FIGURE 2 - China - 2010
Fast forward to Japan in 2010, and take a look at its
demographics. Note the rise in the population over 60 that coincided
with zero population growth and the ‘lost decades’ (economically
speaking), of Japan in the 1990s and 2000s. Today, more than 22.6% of
its population is over 65.2
FIGURE 3: Japan - 2010
China will face a similar population pyramid in 25 years time
as the table below shows. Will it also be downhill for China from here
FIGURE 4: China - 2035
There is however one major difference between China and
Japan. China is developing from a much lower economic base compared to
Japan, so Chinese growth has been and will likely remain substantial in
the immediate term.
Nevertheless, demographics is destiny, and with neither
country having significant immigration programs to alter its population
pyramid, China is likely to face similar pressures caused by a smaller
working population (relative to total population) over the coming
Like Japan in the late 80s and early 90s, China is now
reaping its demographic dividends. And Australia has been benefiting
from China’s rise by exporting its minerals, energy and increasingly
agri-produce (meat, seafood). Tourism from China is another export
industry that could take off soon in Australia. Australia is currently
basking in China’s glow.
But how long will this last? Are we seeing the peaking of
China now? Australian investors need to remain alert to China’s
demographic destiny, particularly as the popular wisdom is that now is
China’s moment, (a time for some contrarian thinking?) just as the early
90s was seen as Japan’s heyday.
Five years ago, Australia had 757,000 people aged 65-69. Five
years from now, there will be 1,161,000 people in that age bracket –
that’s a 53% jump in 10 years. The percentage increase for Australians
aged 60-64 is also a whopping 37%. See table below.
Source UN Population Division http://esa.un.org/unpp/
Businesses and investments targeting ‘active retirees’
(travel agents, providers of ‘income-focussed’ investment products,
health-food) are currently seeing their client base dramatically
The rise is even more substantial when compared to clients in
younger age groups. For example, the number of people aged 30-34 will
rise just 0.8% and those 35-39 will fall 0.6%.
The table below provides another snapshot of the current
change in demographics, comparing the population structure in 1989 to
2009 for the different age groups. Note tthe smaller numbers in the 0-39
groups in 2009 compared to 20 years earlier.
FIGURE 5: Australia - 1989 and 2009
Population in Millions
This big rise3 in the 60-69 group is due to the aging baby boomer generation, the same generation that initiated major societal changes4
in West as they aged from children (Barbie doll 50th anniversary in
2009) to teenagers (RocknRoll) to adults (‘greed is good’
investments/careers/home-ownership) to maturing adults (denial of
Once again, we can expect them to make major societal changes
as they enter retirement. Investment products and services catering to
the older baby boomers (those born in 1946 -1955 who will be aged 60-69
in 2015 and mostly out of full-time work) will mushroom as this
population segment booms.
China’s demographic in 2010 is remarkably similar to Japan in
1990. And like Japan in 1990, China is today reaping its demographic
However, investors should be wary that China’s demographic is
also following Japan’s and will by 2035 be similar to Japan’s
This suggests that we could be at or close to the peak of
China’s economic success with the country potentially looking at its own
‘lost decades’ in the near future.
There are however, differences. China is growing off a lower
base and has much more to develop in terms of infrastructure, domestic
consumption and the creation of a larger services industry. China has
more natural resources to tap, including little explored regions in
Mongolia and its western hinterland. China has a different business, political and social culture to Japan - a
Japanese culture that arguably prevented
the country from making drastic changes in the 1990s/2000s to
cope with its changing economic and demographic circumstances.
In the developed world, fertility rates are now far below
population replacement levels of around 2.1 children per woman. Japan is
the ‘oldest’ nation and its population is beginning to drop (No more
construction for new housing, new roads, new schools etc) as the country
has minimal immigration. Europe is not far behind.
Selected countries. 2010-2015 projected total fertility rates
Germany, Spain, Greece, Italy have rates of 1.38 to 1.50. (France and UK are both 1.85)
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