Many key assumptions and rules that have been relied upon for decades when investing are no longer valid according to Insync Funds Management’s recent white paper entitled The Unstoppable Global Downshift.
When governments set about halving extreme poverty it created an unintended consequence. 1.4 billion fewer children born from the early 1990s. Culminating in 2011 was Peak child (the most children the world will ever see). When they grew up and began working from around 2008 (the same time as the GFC) there were 1.4 billion less workers, less tax payers and less consumers.
Fewer children coupled with an ever longer and healthier lifespans mean two things:
1. The global workforce is shrinking and with it, economic demand and the average returns that can be achieved. The USA is at just 0.5% growth, 4x less than its post war average. China and India its negative, as are nearly all OECD nations. Germany would have to welcome 1.5 million immigrants each year until 2030 just to keep its workforce at the number it is today. In Australia only our immigration keeps it from serious decline.
2. A profound change on businesses and economics result. GDP Growth = Workforce Growth + Productivity Growth. Both are in severe decline, one permanently. This explains why all attempts at rebooting economies sustainably via fiscal and monetary policy have failed. Ahead, growth will come from places and industries that we are not used to it coming from. For example by 2021 almost half of all consumption will come from what we used to label as ‘developing nations’.
Much of the economic issues facing the world are a ‘hangover’ from the GFC, rather a permanent demographic change coupled with a global decline in productivity. The noise and flash of the GFC coincided with the first signs that the usual ‘fill-up’ of new workers was stalling. A few discoveries you need to know as an investor ….
Discovery 1: The world is aging! Population will continue to grow for the next 30 years and there is little that can be done to stop this. Growing to 9 Billion by 2050 (from 7.3Bn today), then flattening and eventually declines. Almost all developed nations workforce populations are in dangerous decline. Why? It happens slowly. The replacement birth rate is 2.1 and post WWII growth averages only 2.0. Instead of a shrinking population however, we’re expanding in number because we are all living longer. The biggest growing segments are the over 60’s and the over 80’s. Old people consumer around a third less than workers.
Discovery 3: Women rule – ok! As women enjoy greater power over their lives, coupled with improving health, birth rates decline. Girls are attending schools in ever greater numbers (e.g. even in large Muslim nations such as Bangladesh and Indonesia). Daily life is well beyond where our assumptions and media imaging portrays.
Discovery 4: But not Religion. This surprises many. As nations move into improving their economic status family size shrinks irrespective religious affiliation. Improving child mortality in Africa is key to obliterating the last bastion of remaining severe world poverty and ballooning populations.
The world is entering a new phase of economic being and smart investors should take time to learn what this change is and how it will impact their future returns and security. This includes how and where to invest; across nations and across industries will need to both change then adapt.
Old beliefs around such things as asset allocation and Index versus Active investing will become obsolete.
It will require new ways to manage risk, and retirees especially will need to revisit the mathematical assumptions around returns and the safe level of drawdowns they can make from their nest eggs.
All this and more can be found in Insync Funds Management’s white paper entitled The Unstoppable Global Downshift found on its website: www.insyncfm.com.au
Grant Pearson (Investment Specialist)
Insync Fund Managers
t: (02) 9216 2977
m: 0413 768 480
e: gpearson@insyncfm.com.au
www.insyncfm.com.au