Are You Prepared for This Massive Global Shift?

The facts we learned in grade school stick with us longer than they stay true. Pluto is no longer a planet. The brontosaurus is actually an apatosaurus. In addition to the four basic tastes of sweet, salty, sour, and bitter, there's a taste called umami. We're constantly learning, so we occasionally need to catch up on the recently discovered facts -- especially when they can impact our worldview and investment ideas.

World population
Discounting any number you previously learned, there are now 7.1 billion people in the world. We've added more than 5 billion humans over the past century, and it's estimated we'll add another 4 billion over the next century before arriving at a peak of 11 billion people.

Source: United Nations Population Division.

Where will all these people live? You might think China. But China will actually lose 250 million people by 2100. India? It will only gain 300 million people by 2100. Africa will actually claim the greatest population gains. The UN estimates that in 2100, five of the top 10 most populous countries will be in Africa:

Country Population in 2013 (millions) Population in 2100 (millions)
India 1,252 1,547
China 1,385 1,086
Nigeria 174 914 
United States 320 462 
Indonesia 250 315 
Tanzania 49 276 
Pakistan 182 263 
DR Congo 68 262 
Ethiopia 94 243 
Uganda 38 205

Investment implications
Your investment time frame may be much shorter than a century, but the trends leading to these numbers are already in place.

For example, China's economic growth will not come from a growing population but from the transformation of poor rural families to middle-class urbanites. It will begin to resemble the economies of England, France, and Germany, and it will encounter the same challenges of a younger working demographic supporting a large elderly population.

One study from the Federal Reserve Bank of San Francisco links an older population of retirees to worse-off equity markets. It found that as a population drifts from saving to retiring, P/E ratios fall as there's less demand for stocks and retirees shift money to more guaranteed sources of income, like bonds. While this spells trouble for Chinese investments in the long-term, China's working-age population is expected to peak in 2020. This could mean there is still half of a decade left of positive demographic investment trends.

Given these two trends, a rising middle class, and a soon-to-be aging population, you can focus your investment ideas accordingly. And if you do find a winning strategy, these trends will play out repeatedly this century as African countries experience their own population boom. What are these strategies?

For starters, you can focus on one of the first things people spend money on: improving their health. This could mean a retailer like Walgreen (NYSE: WAG  ) , which is quickly growing into a clinic. The drugstore bought a 45% stake in the European-based Alliance Boots in 2012 and recently bought a 4.5% stake in drug distributor AmerisourceBergen (NYSE: ABC  ) . As the company fine-tunes its established operations in America and Europe -- it's adding 100 more clinics this year and buying its generic pharmaceuticals through AmerisourceBergen -- its international positioning could allow it to infiltrate emerging markets with ease.

You can also go with companies that are already established in developing countries, though their businesses can be a bit riskier. For example, female-condom maker Female Health Company  (NASDAQ: FHCO  ) experiences extremely lumpy revenue because governments and public-sector organizations make up over 90% of its customer base. It also faces the threat of competition from a few other female-condom makers, though none have approval from both the FDA and the World Health Organization yet. With many global projects focusing on HIV and AIDS prevention -- for example, the $4.6 billion Family Planning 2020 program launched by the Bill & Melinda Gates Foundation and the UN Population Fund in an effort to provide family planning for 120 million females in developing countries -- there is huge opportunity if the company's female condom catches on.

Realigning your world view
The actual name of a certain dinosaur may not be that important, and it likely won't affect anything in your life. But if you don't continue to educate yourself, you won't be able to anticipate trends that could help you plan your investments. 

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  • Report this Comment On April 22, 2014, at 10:18 AM, Interventizio wrote:

    Excellent article. I know about FHCO. I remember that Soros used to own it, I don't know if he still does.

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