When considering investments in various countries, should demographics play a key role? The answer is both yes and no, depending largely on your investment timeline.
In the world of BRICS demographic investment, demographics have become a critical factor supporting the shift of economic power from rapidly aging Western economies to younger developing nations. Its impact might be even greater than initially apparent, particularly for investors who base decisions on consumption levels and similar indicators of local population potential in BRICS and other emerging markets.
First, investors with horizons beyond the typical week-to-two-year range won’t gain much wisdom—or lose much—by spending extensive time on demographic statistics. In 2012, stock markets in the US, Japan, and Europe rose about 20%, while BRICS markets declined or moved sideways. Population changes in size and age structure accumulate very slowly, even if inevitable.
For stock trading or identifying market cycles, it’s more effective to base decisions on expectations of political stability, economic growth rates, income dynamics, trends in money and credit markets, regulator policies, and similar factors.
Second, over the past decade or so, BRICS and other emerging markets’ stock markets have been more profitable than those in developed countries. This occurred for many reasons, but largely due to demographic features in BRICS nations. Clearly, consumption patterns and economic growth rates vary in BRICS countries with growing or shrinking populations, like Brazil versus Russia, or those with faster or slower aging, like China versus India. Thus, when investing in corporate securities, consider demographic factors influencing market size, growth dynamics, profit distribution, urbanization levels, housing and infrastructure needs, and goods/services demand based on consumer age.
Demographic Dividend Explained
Demographers often refer to the demographic dividend—a phase where the number of dependent children decreases, working-age population grows, but before the elderly non-working share rises. This stage typically—though not always—brings higher consumption, savings, overall welfare, labor productivity, and economic growth rates. Young workers introduce new ideas, energy, and innovations, yet haven’t reached the point where aggregate expenses exceed savings, supporting higher investment levels. However, workers aged 35-55 usually become a major driver of savings and investments in the economy.
Over the next 20 years, China’s 35-55 age group will shrink from 32% to 29%. In India, it will rise by 5% (to 27%), and in Brazil and Russia by 3%. For Russia, this is solely due to overall population decline. Investors must focus on key age group characteristics, analyzing the old-age dependency ratio: the ratio of people aged 65+ to those aged 15-64.
In India, this ratio will grow from 8% to 12% by 2030 and 28% by 2050. In Brazil, from 10% to 36%. In China, to 42% from 11% today. In Russia, to 39% from 18%. Consequently, India and Brazil should be top picks for investors, as their economic growth rates strengthen while negative social and financial impacts weaken. China is about to realize its demographic dividend, while Russia has already cashed it in.
Challenges Looming Over China
Third, India’s younger population doesn’t automatically mean faster economic development than China, the fastest-aging nation. Russia’s high GDP dynamics from 2000-2007 and solid growth since 2010 occurred despite continuous population decline since 1992, which will persist.
Brazil, with its benchmark demographics for a middle-income country, raised concerns due to low savings and investment levels, leading to weak economic growth rates.
Beyond a country’s demographic structure, what its population does matters. If mostly engaged in productive labor, the growing young generation will thrive, and economic costs from the elderly can be managed relatively easily.
Today, a third of India’s population is children under 15. As they reach working age, India’s workforce over the next 20 years will exceed Western Europe’s total working-age population. India is notorious for weak labor laws and job creation difficulties, plus high average poverty across employment types.
China’s working-age population is near its peak and projected to drop by over 100 million by 2040. Hopefully, this will be offset by productivity growth. If not, a storm cloud hangs over China’s economic and social prospects. Even with relatively high performance standards, China lags the West in higher education quality and accessibility.
Projections show Russia’s working-age population declining by 20 million to 84 million in the same period. While oil and gas remain the economic backbone, internal growth sources weaken due to falling investments and productivity, partly linked to demographics. Here, it’s less about science, technology, and education development, and more about economic policy and management quality.
Lessons for Investors
Fourth, investors can benefit from how changing age structures and working-to-non-working ratios affect asset market values, as markets pay more for scarce resources. When labor is abundant, as in the demographic dividend phase, capital returns should be higher. Over time, as rapid aging creates labor shortages, labor (wages) becomes more profitable than capital. High interest rates and inflation typically characterize countries with slower population aging. Thus, currently, BRICS and other major emerging markets’ money and capital returns should exceed those in faster-aging nations.
But this is incomplete. BRICS capital returns may be higher over time but with increased volatility from diverse economic and political factors, plus difficulties in structural reforms as countries enrich and economies complexify. BRICS nations have reached this point, each uniquely.
The lesson for investors: demographic trends matter when analyzing societal structural shifts and consumption models, or assessing if companies understand demand changes from aging populations, and if governments have adaptation strategies.
However, for shorter horizons, basing buy/sell decisions on demographics is barely more effective than flipping a coin.
Link to related BRICS article on emerging markets growth for deeper insights into regional dynamics.
George Magnus Independent Economist-Consultant, Former Chief Economist at UBS
- Key Insights:
- Focus on demographic dividend for long-term gains.
- Monitor aging population impacts on BRICS.
- Prioritize BRICS economic trends over short-term trades.
In conclusion, BRICS demographic investment strategies should weigh population dynamics alongside emerging markets growth, China innovation in education, and African investments parallels for balanced portfolios. Explore BRICS economic trends further.
