NEW COVER TO COME
Learning objectives Investors should leave the presentation with an ability to discuss upcoming demographic challenges and the growing debt problem across emerging and developed markets the differing projected labour force growth and outlook by region the investment implications of the demographic outlook 1 2 3 1
World GDP Growth Lower growth, lower rates World real GDP growth FOMC forecasts of longer run rates 7 6 5 World Real GDP growth (y/y) 5 year annualized growth Linear (World Real GDP growth (y/y) 4.50% 4.25% Average Median 4 4.00% 3 2 3.75% 1 3.50% 0-1 3.25% -2 1965 1975 1985 1995 2005 2015 3.00% 2012 2013 2014 2015 2016 Source: Bank of England. 2
World s population Total: 2.54bn Total: 7.55bn Total: 11.18bn Source: UN Population Statistics 2017. 3
Japan s population Rapid ageing Total: 82.8m Total: 127.5m Total: 84.5m Source: Visual Capitalist, US census Bureau IDB, March 2016. 4
The Japan example Demographics is destiny Japan birth index versus CPI (% Change) 25 Working-age population growth (%) Total population growth (%) CPI (%) (LHS) 2 20 15 1 10 0 5 0-1 -5-2 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 25 28 31 34 37 40 43 46 49 Source: Bloomberg. 5
The Japan example Demographics is destiny 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Nikkei (LHS) Working-age population growth (%) JGB 10y (%) 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0-1.0 0-2.0 1970 1980 1990 2000 2010 2020 2030 Source: Gavekal, Will Denyer, November 2017, how much longer for lower rates. 6
Ageing populations consume less US household consumer spending by age group and category Annual household spend (US$) $80,000 Others $70,000 Health, Personal Care Education $60,000 $50,000 Clothing Entertainment Pension, Life Insurance Spend Falls 47% by Age 75+ $40,000 Food, Drink, Tobacco $30,000 Transport $20,000 $10,000 Housing $0 <25 25-34 35-44 45-54 55-64 65-74 >75 The views expressed are those of the presenter at the time of preparation and may change in the future. Source: The ph report, US household consumer expenditure survey 2016, Bureau of labour statistics. Source: Pimco report on demographics. 7
Demographic outlook for advanced economies Ageing populations Population shares by age group Average age of total population 45% 40% 35% 30% 25% 20% 15% 10% 5% 20-44 45-64 65-79 >80 50 48 46 44 42 40 38 36 0% 1950 1970 1990 2010 2030 2050 2070 2090 34 1950 1970 1990 2010 2030 2050 2070 2090 Source: UN Population Statistics, 31.12.17. 8
Falling real interest rates Long-term real interest rates have declined by around 450bps Long-run real rates (%) 7 6 5 4 3 Real rates driven lower by: Ageing populations Lower growth expectations Higher inequality Growth in precautionary savings from EM s Less investment demand 2 1 0 World real rate Advanced economies Emerging economies 1980s average -1 1985 1990 1995 2000 2005 2010 2015 Source: Are Low Real Interest Rates Here to Stay?, Lukasz Rachel & Thomas D. Smith, Bank of England, 31.12.15. 9
Investment implications Lower government bond yields 16 UST 10 Year (%) Birth Rate (%) (RHS) 3.5 14 12 3.0 10 8 2.5 6 4 2.0 2 0 1.5 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015 Source: Gavekal, Will Denyer, 31.12.15. 10
Japanification of CB balance sheets Central bank balance sheets: Japan vs. US vs. Europe 120 100 BoJ assets % of GDP Federal Reserve assets % of GDP ECB assets % of GDP 80 60 40 20 0 1997 2001 2005 2009 2013 2017 Source: Bloomberg, 31.12.17. 11
Ageing population World population growth is slowing, but still positive Workforce growth peaked in the early 1980 s 2.5 2.0 Developed world working population set to fall 0.3% each year until 2020 2.5 2.0 % Year 1.5 1.0 1.5 1.0 % Year 0.5 0.5 Working-age population growth Total population growth 0.0 50 60 70 80 90 00 10 20 30 40 50 0.0 Source: HSBC, an age old problem, 31.12.17. 12
Japanification of the West? Boom in working age population explains much of growth in 80s & 90s US (% year) Europe (% year) 2.0 1.5 1.8 1.6 1.0 1.4 1.2 0.5 1.0 0.8 0.0 0.6 0.4-0.5 0.2 0.0 Working Age Population Total Population -1.0 Working Age Population Total Population 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Source: HSBC. By 2050, over 90 countries are projected to have a shrinking workforce, triple today s level. Europe s share of working age pop. just 7% in 2050 from 24% in 1950. 13
Today s reality deflating potential growth Developed economy productivity has been slowing for years Total factor productivity growth 2.5 Developed economies World economies Emerging and developing economies 2.0 1.5 1.0 0.5 0.0-0.5 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-1.0-1.5 Growth Potential = Sum of productivity growth + Growth in working-age population Source: The Productivity Engine, Andrew Lees, MacroStrategy Partnership, 31.12.16. 14
Differing outlooks for EM Workforce growth in EM by region 40 years of demographic tailwinds are giving way to 40 years of demographic headwinds Working age population in China set to shrink by 2% over next decade. Peaked in 2015 0 to less than -1% 1 to 3% Over 3% No data Currently as many people aged under 20 (500mn) in India as there are people in the EU Source: HSBC, An age old problem, December 2017. 15
China s population Total: 554.4m Total: 1,409.5m Total: 1,020.6m Source: United Nations, 2017. 16
Demographic changes China set to place huge burden on working population China s total fertility rate China s dependency ratio 7 6 One child policy introduced in 1979 0.9 0.8 Youth dependency ratio Old age dependency ratio 5 0.7 0.6 4 0.5 3 0.4 2 0.3 0.2 1 0.1 0 0 1962 1972 1982 1992 2002 2012 1960 2010 2020 2030 2040 2050 2060 Source: Huffington Post, December 2017. Note: Total fertility rate (TFR) defined as number of children born per woman who lives to end of her childbearing years. 17
Worsening dependency ratios 1.0 Japan US Europe 1.0 China India Nigeria 0.9 0.9 0.8 0.8 0.7 0.7 0.6 0.6 0.5 0.5 0.4 0.4 0.3 0.3 0.2 50 60 70 80 90 00 10 20 30 40 50 0.2 50 60 70 80 90 00 10 20 30 40 50 Source: UN Population Division, December 2017. Note: Defined as under 16 and 65 and over/working-age population (16-64). 18
Overview Japanification of the world Demographic outlook combined with heavy debt burden, especially at the public sector level, means low rates here to stay Demographic estimates suggest US, Europe and other developed economies will eventually follow Japan's path Unlikely we have come to the end of the road of unconventional central bank policymaking The outlook is mixed for emerging economies. China also facing the Japanification effect India and Nigeria are set to experience rapid working age population growth The views expressed are those of the presenter at the time of preparation and may change in the future. 19
Learning outcomes Investors should have gained an ability to discuss upcoming demographic challenges and the growing debt problem across emerging and developed markets the differing projected labour force growth and outlook by region the investment implications of the demographic outlook 1 2 3 20
Disclosure This presentation is intended for investment professionals and not for the benefit of retail investors. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. Any data or views given should not be construed as investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance is no guide to the future. Company examples are for illustrative purposes only and are not a recommendation to buy or sell. Quoted yields are not guaranteed and may change in the future. Awards and ratings should not be taken as a recommendation. For your security we may record or randomly monitor telephone calls. Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Financial Conduct Authority. No part of this presentation may be reproduced in any manner without the prior permission of JAM. 21