"But not all demographic trends make for strong stock markets. Japan, the world's fastest aging country, is facing a problematic economic future. The country's current population of 128 million is projected to shrink 33% by 2060, according to Japan's Health and Welfare Ministry. By then seniors will account for 40% of all Japanese citizens.
Elderly can stifle growth
Just as a car won't start without gasoline, if there aren't enough young, productive workers in an economy, that economy is unlikely to go anywhere. That's precisely been the problem in Japan: a disproportionate--and increasing--amount of its economic resources are flowing to an aging population, which in turn has stifled growth there.
Japan's aging problem is nothing new; it began in earnest in the 1990s, and its economic effects have been reflected adversely in the Japanese stock market. The Nikkei Index, after reaching an all-time high of 38,916 at the end of 1989, lost 81% as of February 2009. The Nikkei has never so much as sniffed its former heights and languishes at about 8,000 today.
Italy is trapped in a similar demographic black hole, with a population that's been declining for decades. In 1964 an Italian mother bore an average of 2.7 children, according to the World Bank. By 2009 that average had fallen to 1.4 children. The Italian populace has been sinking below the replacement rate of 1.9 (the rate needed to maintain current population levels) since 1975.
This decline has taken a steady economic toll. During the 1990s, when Italy's economy began to wane notably, its gross domestic product grew on average 1.2% annually, trailing the European Union's 2.3%. Italy's labor productivity only grew 0.1% a year between 2001 and 2005, and it dropped by 0.8% annually between 2006 and 2009, according to The Economist. Not surprisingly, Italy is now flirting with fiscal insolvency, reeling from its fourth recession since 2001 and its nose-bleeding heights of public debt.
Who are millennials?
So, what's the demographic destiny of the United States? More to the point, are the economic prospects of the millennial generation in the U.S. doomed to resemble those of their peers in Japan and Italy? And if those prospects aren't doomed, what distinguishing characteristics offer hope that the millennials and the stock market may enjoy a better fate?"
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One of the reasons baby boomers are cited as the gold standard among generations is their sheer size; they number 81.3 million, according to the most recent U.S. Census. But millennials constitute an even bigger generation, 85.2 million strong. They're the largest generational cohort in the U.S., and we share the view of Dan Wantrobski at Janney Capital Markets, who believes that millennials' strength in numbers could signal a coming boom in stocks. It wasn't until baby boomers had reached their early- to mid-30s that they truly began to make their presence felt in the stock market. The Great Bull Market of the Century was the result. Most millennials are still finishing college and haven't yet attained some semblance of financial maturity and means. In our view, as they do acquire more financial maturity and means over the next few years, as they enter their prime earning years, they will put their money to work, to the benefit of the economy and the stock market.
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Globally, the fastest growing economies are those of emerging nations in Asia, Africa, and South America, due in no small part to their relative youthfulness. When a country's population is disproportionately young, it brings economic growing pains; a large number of dependent children tends to dampen economic growth. And conversely, when that army of children finally marches into old age, caring for them tends to diminish a country's productivity. But in the years in between, when that segment of the population is of working age, a country's economy, productivity, and living standards can rise at above-average rates. And a better economy, improved productivity, and a higher standard of living are typically accompanied by heavy investment in stocks.
In emerging nations, millennials are pumping up working-age populations. In 2010 the ratio of workers to the total populace in East Asia rose from 46.8% in 1975 to 64.1%; in Latin America, from 43.8% to 56.3%; and in South Asia, from 45.2% to 54.8%.
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