Forecasting economic variables for a period often longer than 3 years is something that takes most of the objectivity out of the picture as many assumptions have to be made and there’s no way to predict black swan events such as the housing crisis of 2008 or the dot com bubble of the early 2000s.
Population growth and other demographic items are far more predictable in this sense and there are valuable conclusions that can be made from the evolution of these variables and their impact on the global economy.
Demographics Are the Key to Understanding the Future of Global Economics
The European Union and Japan are currently facing a challenging situation. A big portion of the population is older than 65 years old and, in Japan specifically, a significant number of people are also moving towards that stage of their lives.
This situation creates challenges for the labor market where there will be fewer people to fulfill job positions and it also raises questions about the sustainability of economic growth as statistics suggest that individuals older than 65 years old tend to consume much less than their younger peers.
If a considerable percentage of the population of these developed economies move towards more advanced ages, the impact on economic growth associated with a reduction in consumption volumes will be important and you should line up your investments to take advantage of this incoming reality.
Which Countries Are Best Prepared?
China and the U.S. seem to be better prepared to withstand this trend, as the former has a booming millennial generation aged between 25 to 29 years old that will help balance things in the near future.
On the other hand, the U.S. seems to have a very diversified age distribution that can sustain its current growth over the long term.
Understanding these trends and how demographics will probably evolve in the near future should provide an appropriate framework for different investment strategies.
Where To Invest For The Next 10 Years
It’s pretty clear (from a demographic perspective anyway) that Europe and Japan will continue to be a basket case for some time. The US and China will continue to dominate the economic landscape for at least the next 10 years, with China in particular with China in particular showing great prospects with the urbanization of its population.
That means stocks like BABA, BIDU, JD and IQ should be on your radar.
A safer way to play it might be to buy a diversified portfolio of Chinese stocks via ETF’s like FXI or MCHI.
I like long-term put credits spreads and risk reversals on FXI.
Another idea would be go long FXI and short a Japanese (IJP) or European ETF (IEU) in order to maintain a delta neutral portfolio.
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
Image Credit: Investment Gems