I read an article that would please Malthus. “Demographic economist” Richard Hokenson sees world population peaking at 8 billion and then falling. Good news for the planet. But there are implications for investors who’ve only known growing populations (ie. all of us).
Hokenson believes a shrinking population will mean a shrinking global economy and low interest rates.
Japan is a prime example. Its population, unchanged since 1990 at about 125 million, will fall by 20% by 2050. Japanese economic growth since 1990 has been tepid. Repeated efforts to re-start the economy have failed. Even with interest rates at nil, inflation is flat.
Hokenson says: “Aging populations don’t borrow money. It doesn’t matter what the price of money (interest rate) is. You can push out money but it doesn’t go anywhere.”
Rebuilding after the quake may add to Japan’s GDP, but still, Japan is in decline. (Of course, they may find an ingenious solution like immigration without the pesky foreigners.)
What of world class firms like Honda (HMC), Sony (SNE), Mitsubishi (MSBHY.PK)? Already, these firms are global operations that happen to be based in Japan. With no growth at home, this trend will continue.
Last week, with stocks down, we made a tactical decision to buy the Japan ETF (EWJ) for quick profit. Our archerETF Oscillator (below) shows some potential upside remains in the position, which we will wait on before clearing.
Click to enlarge
| archerETF Metrix | EWJ |
|---|---|
| Category | EAFE Equity |
| Benchmark | MSCI Japan |
| Total Holdings | 324 |
| 52 Week High | $11.61 |
| Recent Price | $10.57 |
| 52 Week Low | $9.12 |
| Avg Daily Volume | 45.26 Million Shrs |
| Avg Daily Volume ($) | $478.43 Million |
| Total Market Cap | $7.30 Billion |
| ETF Annual Fee | 0.54% |
| ETF Trading Currency | USD |
| ETF FX Exposure | JPY |
| Annual Volatility | 26.99% |
| Correlation to S&P 500 | 78.98% |
| Return to Risk Ratio | -93.54% |
| Use of Leverage | No |
| Use of Futures | No |
| 6 month Return | 7.20% |
| 1 Year Return | 3.53% |
| 2 Year Return | 34.31% |
| 3 Year Return | -12.86% |
| Dividend Yield (TTM) | 1.34% |
Disclosure: I am long EWJ.
