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Demography, politics,
economics &… Investing!
Mourtaza Asad-Syed
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
AGENDA
1
HYPOTHESIS
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
DEMOGRAPHY IMPACT ON ECONOMIC DEVELOPMENTS
DEMOGRAPHY IMPACT ON ASSET PRICES
CONCLUSION
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 2
DEMOGRAPHY IMPACT CONCLUSIONS
Thesis
▪ A population demography (summarized by its median age) defines a
country’s political, economic development and asset prices
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 3
Examples North Korea Senegal Mexico Norway
Min-Max
median age 17-38 16-42 16-43 28-45
# Countries 52 37 53 25
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
Nature of political regimes is linked to demographic structure
Median age by democratic rating (2011)
Source: The Economist Intelligence Unit
Note: Democracy index is ranked by groups: <4 Authoritarian, 4-6: Hybrid, 6-8: Flawed democracy, >8: Full democracy
23 24
30
39
Authoritarian regime Hybrid regime Flawed democracy Full democracy
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
Demographics is a key determinant of political stability
4
Example Cambodia
(1970-1975)
Cuba
(1956-1959)
France
(May 1968) Min-Max
median age 15-32 16-34 19 -40
# Occurrences 50 135 33
Source: Wikipedia, The World Bank, The United Nations, own calculations
Median age at times of major political events (1950-2012)
19 21
31
20
23
31
Civil wars Revolutions Democratic movements & riots
Average all Average top 30 countries
«The age
structure in
France today-
40 years
median age-
prevents any
popular
uprising»
Emmanuel
Todd
March 2012
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
China and India should trade places…
5
China
India
R² = 34%
0
1
2
3
4
5
6
7
8
9
10
10 15 20 25 30 35 40 45 50
De
mo
cra
tic
in
de
x
Population median age
PopulationCivil wars Revolutions Democratic revolts
Median age and democratic level (2011)
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 6
Major civil wars Major revolutions Major democratic movements &
riots
Year Age* Year Age* Year Age*
1950 Korean War 17 1952 Egyptian Revolution 20 1965 US Watts Riots 28
1970 Cambodian Civil War 19 1956 Cuban Revolution 23 1968 France May 1968 revolt 32
1975 Lebanese Civil War 21 1979 Iranian Revolution 18 1974 Carnation Revolution 30
1990 Rwandan Civil War 15 1989 Romanian Revolution 33 1989 Velvet Revolution 33
1991 Yugoslav Wars 32 2011 Libyan revolution 26 2010 Arab Spring in Tunisia 29
Average median ages 21 24 31
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
Anecdotic evidences around major events confirm the thesis
Examples of major political events (1950-2012)
*Median age at event date
Source: Wikipedia, The United Nations, own calculations
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 7
DEMOGRAPHY IMPACT ON POLITICAL DEVELOPMENTS
Political developments do not appear randomly, young countries are at risk
Civil wars Revolutions Democratic movements &
riots
Under 25
25-30
30-35
35-40
Over 40
100%
Occurrences of political events by median ages (1950-
2012)
0%
0%
5%
10%
85%
0%
0%
8%
13%
80%
0%
34%
28%
14%
24%
100% 100%
Source: The United Nations, own calculations
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 8
DEMOGRAPHY IMPACT ON ECONOMIC DEVELOPMENTS
Historical studies show impact of population age on economic growth
GDP growth
10-year average
GDP per capita growth
10-year average
Demographics and economic growth
*
Between 25-32,
individuals’ living
standards improve
faster
* Median age at start of the 2000 decade
Note: 1950-2000 historical study excluding countries with high dependency to natural resources
Sources: UNDP, Angus Maddison, own calculations
* *
Young countries
grow faster
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ECONOMIC DEVELOPMENTS
A snapshot shows the link between population age and subsequent GDP growth
0 2 4 6 8 10 12
ItalyFranceJapan
USAEuro Area
MexicoSpain
KenyaGermany
UKSouth Africa
BrazilColombiaPakistan
PhilippinesTurkeyEgypt
ArgentinaThailand
NigeriaTanzaniaIndonesia
PolandSouth KoreaBangladesh
UkraineRussia
IndiaVietnam
China
Ranking by GDP growth per capita 2000-10, in local currency, Top 30 countries by population size
Surging countries
>4% growth
Maturing countries
<2% growth
Rising countries
2-4% growth
6.5% 28
8.2% 24
3.0% 35
Source: The World Bank
Average
inflation
Median age
in 2000
9
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ECONOMIC DEVELOPMENTS
Economic and financial crisis often occur at specific age of population
10
External crisis (1990-2012)
Balance of payment crisis
Year Country Median Age
1991 India 21
1994 Mexico 22
1997 Thailand 27
1998 Russia 37
2001 Argentina 28
Average 27
Internal crisis (1980-2012)
Real-estate / Banking crisis
Year Country Median Age
1989 Japan 37
1990 Switzerland 37
1990 Sweden 38
2007 USA 36
2008 Spain 36
Average 37
Demographics and recent economic and financial crisis
24
25
26
Examples of countries at risk given their current median age
India
South Africa
Venezuela
35
37
38
China
Australia
Poland
Source: The United Nations, The World Bank, Wikipedia, own calculations
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 11
37
24
18
19
27
18
17
41
38
28
27
36
23
19
37
30
25
32
22
45
40
31
37
30
10 15 20 25 30 35 40 45 50
DEMOGRAPHY-BASED ECONOMIC AND POLITICAL FRAMEWORK
Political Event
Economic Event
Political Regime
Economic Phase
Quartiles 1-Q3 median ages Civil war
Revolution
Hybrid regime
Authoritarian regime
Democratic
movements & riots
Flawed democracy
Full democracy
External crisis
Internal crisis
Rising
Maturing
Surging
Source: The United Nations, Wikipedia, The World Bank
Average
Quartile
1
Quartile
3
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
Major financial variables such as interest rates are determined by demography
12
R² = 48%
R² = 0.91
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
20 25 30 35 40 45 50
US (Discount rate) Japan (3m rate)
Inflation and median age across countries All countries (5-year inflation rate 2007-2012)
Interest rates and median age over time US & Japan (5-year average 1970-2013)
R² = 49%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
15 25 35 45 55
Top 30 countries All countries
Inflation and median age across countries All countries (5-year inflation rate 2007-2012)
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
Stock valuation should be a bell curve with a top around 35 years of median age
13
15 20 25 30 35 40 45 50
Median Age
GDP Inflation Equity multiple
Schematic vision stock valuation drivers
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
In practice, hard to find stock valuation to be directly explained by demography
14
Valuation and age across countries All EM countries (10-year avg P/E 2002-2012)
Stock valuation and median age over time US (5-year average 1950-2013)
R² = 0.2263 0
5
10
15
20
25
30
35
24 26 28 30 32 34 36 38 400
5
10
15
20
25
30
35
24 26 28 30 32 34 36 38 40
Median age
P/E ratio
Median age
P/E ratio
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
Stock valuation might be driven by saving pattern over the life cycle
15
Savings per
household
Illustrative
income per
household
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
Mid-30s to Mid40s have high income, high savings and preference for stocks
16
Recommended average asset allocation per age
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IMPACT ON ASSET PRICES
30s and 40s cohorts have high income, high savings and preference for stocks
17
0
5
10
15
20
25
30
35
1940 1950 1960 1970 1980 1990 2000 2010 2020 2030
20%
22%
24%
26%
28%
30%
32%
30-40s as % of total population Shiller PE (RHS)
Equity-buying cohort and Stock valuation
Investment Strategy Advisory Services | © Mourtaza Asad-Syed 18
DEMOGRAPHY IMPACT - CONCLUSIONS
Implications
▪ OECD countries are locked in low growth deflationary environment except
for the U.S.
▪ China is likely to be subject to a credit crisis, but its authoritarian regime is
at odd with its demographics, the next 10 year should see the end of CP.
▪ Latam followed by Arab countries are in the sweet spot for political and
economic improvements
▪ India should enter a rapid economic growth period but it might also face
major social/ political challenges, although its political regime is already
quite advanced relative to its population structure
▪ Sub-Saharan African countries will have to wait for at least another
decade to see their living standard progress rapidly
Implications
▪ OECD interest rates are likely to remain low for long as there is a stable
regime for old aging countries is absent inflation and zero interest rates
▪ Stock valuation are not directly to age structure, but age-based
preferences could explain 5 decades of changes and predict dismal return
ahead in the US
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
DEMOGRAPHY IS DESTINY OF NATIONS… IF WE GET THERE!
19
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
APPENDIX
20
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
APPENDIX
Biography
21
Mourtaza Asad-Syed
Mourtaza (40) is the president and founder of the
Investment Strategist Association of Geneva
(ISAG), which gather 20 major banks in Geneva.
He was Global Head of Investment Strategy for
Société Générale Private Banking (SGPB) heading
a team of senior strategists across asset classes.
He also had operational responsibilities in
Portfolio Management and Advisory as deputy-CIO
for SGPB in Switzerland (USD20B in AuM), which
he joined in 2008.
He started his career on capital markets in 1994.
He first joined JP Morgan as an economist, then
CDC-Marchés (Natixis) in New York and became a
management consultant at McKinsey. In 2004, he
was a strategist and fund manager in a long/short
European equities hedge fund. His professional
interests are Strategy, asset allocation process,
tactical views, and top-down ideas, where macro
dynamics can generate attractive investments
across asset classes.
Mourtaza holds an MBA from the University of
California at Berkeley and an M.A. in Economics
from the Paris School of Economics (PSE). He
graduated in Economics and Statistics from the
École Nationale de la Statistique et de
l'Administration Économique (ENSAE).
He published research reports, articles and
interviews and he published a book Gold
investing that will be released during Summer’14.
Investment Strategy Advisory Services | © Mourtaza Asad-Syed
APPENDIX
Bibliography
Cincotta, Richard P. ; Engelman, Robert ; Anastasion, Daniele (2003). The Security Demographic: Population and
Civil Conflict After the Cold War. POPULATION ACTION INTERNATIONAL - SECURITY DEMOGRAPHIC
WASHINGTON DC. PDF url : ADA422694
Dr Jean-Marie Robine (2011). The Future is Bright The Future is Silver. AXA Research Fund. PDF url http://axa-
research.org/echo-5-march-2011
Staveteig, Sarah. (2005). The Young and the Restless: Population Age Structure and Civil War. PDF url
http://www.wilsoncenter.org/sites/default/files/Staveteig.pdf
Herbert Moller (1968). Youth as a Force in the Modern World. Comparative Studies in Society and History, 10 , pp
237-260 doi:10.1017/S0010417500004898
Urdal, H. (2006), A Clash of Generations? Youth Bulges and Political Violence. International Studies Quarterly,
50: 607–629. doi: 10.1111/j.1468-2478.2006.00416.x
Diane J. Macunovich (2010) The Role of Demographics in Precipitating Economic Downturns. PDF url
http://bulldog2.redlands.edu/fac/diane_macunovich/web/Macunovich_demographics_paper.pdf
Central Intelligence Agency (2001) Long Term Global Demographic Trends: Reshaping the Geopolitical Landscape
PDF url https://www.cia.gov/library/reports/general-reports-1/Demo_Trends_For_Web.pdf
Beatrice Daumerie; Karen Hardee (2010) The Effects of a Very Young Age Structure in Haiti: Country Case Study.
PDF Url: http://www.populationaction.org/oldmedia/SOTC_Haiti.pdf
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