20140515 Demographic, politics, economics

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


Examples North Korea Senegal Mexico Norway

Min-Max

median age 17-38 16-42 16-43 28-45

# Countries 52 37 53 25


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



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



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)


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


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



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



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



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



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


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



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)



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



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



Stock valuation might be driven by saving pattern over the life cycle

15

Savings per

household

Illustrative

income per

household



Mid-30s to Mid40s have high income, high savings and preference for stocks

16

Recommended average asset allocation per age



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


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


DEMOGRAPHY IS DESTINY OF NATIONS… IF WE GET THERE!

19


APPENDIX

20


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.


APPENDIX

Bibliography

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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

22

http://www.dtic.mil/cgi-bin/GetTRDoc?Location=U2&doc=GetTRDoc.pdf&AD=ADA422694

http://bulldog2.redlands.edu/fac/diane_macunovich/web/Macunovich_demographics_paper.pdf

https://www.cia.gov/library/reports/general-reports-1/Demo_Trends_For_Web.pdf





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20140515 Demographic, politics, economics