Demographics and Capital Flows
Global Aging And Financial Markets
Demographics and Capital Flows Prof. Jeremy J. Siegel The Wharton School September 7, 2006 Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 1
Long Term Demographic Trends Past marked by (1) rising life expectancy and (2) falling Retirement Age U.S. Life Expectancy and Retirement Age 80 Life Expectancy 76 72 68
Retirement Age
1.6 Years
15.9 Years
64 60 56 1950- 1955- 1960- 1965- 1970- 1975- 1980- 1985- 1990- 1995- 20001955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
But this trend Cannot Continue Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 2
Age Wave -- US
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 3
Age Wave – Japan
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 4
Big Questions The Biggest Questions Facing the Developed World Who Will Produce the Goods? Who Will Buy the Assets?
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 5
19 50 19 -1 55 95 19 -1 5 60 96 19 -1 0 65 96 19 -1 5 70 97 19 -1 0 75 97 19 -1 5 80 98 19 -1 0 85 98 19 -1 5 90 99 19 -1 0 95 99 20 -2 5 00 00 20 -2 0 05 00 20 -2 5 10 01 20 -2 0 15 01 20 -2 5 20 02 20 -2 0 25 02 20 -2 5 30 03 20 -2 0 35 03 20 -2 5 40 04 20 -2 0 45 04 -2 5 05 0
Retirement Age must rise dramatically U.S. Life Expectancy and Retirement Age
88
84
80
76
72
68
64
Copyright Jeremy J. Siegel
Life Expectancy
15.9 Retirement Years 11.6 Years
Age
60
56
Data from Future For Investors and other sources. 6
19 5 19 0-1 5 9 19 5-1 55 6 9 19 0-1 60 6 9 19 5-1 65 7 9 19 0-1 70 75 97 19 -1 5 80 98 19 -1 0 8 9 19 5-1 85 9 9 19 0-1 90 9 9 20 5-2 95 00 00 20 -2 0 0 0 20 5-2 05 1 0 20 0-2 10 1 0 20 5-2 15 20 02 20 -2 0 2 0 20 5-2 25 3 0 20 0-2 30 3 0 20 5-2 35 40 04 20 -2 0 45 04 -2 5 05 0
Improvement in 2004 UN Data U.S. Life Expectancy and Retirement Age
88
84
80
68
64
Copyright Jeremy J. Siegel
Life Expectancy
76
72
Retirement Age
15.9 2000 Model Years 11.6 Years
2005 Model
60
56
Data from Future For Investors and other sources. 7
Population profile in Developing World
Outside the developed countries, the population of the world is much younger.
Let’s look at India.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 8
Age Wave -- India
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 9
Exchange of goods for assests
Throughout history, the “old” have sold assets to the young in exchange for goods.
Today in US, Florida’s retirees sell assets to and import goods from other 49 states.
In the future the US will sell its assets to the rest of the world.
Success depends on rapid growth in the developing world.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 10
Population 2005
World GDP 2005
15.2% Indonesia 3.45%
U.S. 4.61%
Western Europe 6.14%
SubSaharan Africa 11.62%
Japan 1.98%
Canada 0.50% Aus / NZ 0.37%
Hi Inc. nonOECD 1.57%
Mid Income 5.61%
84.8%
53.3% Indonesia 2%
U.S. 21%
Mid Income 5% Eastern Europe 5% Latin Am/Carib 8%
Low Income 13.44%
Eastern Europe 4.60%
Low Income 5%
SubSaharan Africa 2%
India 6%
China 20.35%
Latin Am/Carib 8.68%
Western Europe 19%
Japan 7%
China 14%
Canada 2%
India 17.07%
46.7%
Hi Inc. nonOECD 3%
Aus / NZ 1%
Population 2050
World GDP 2050 22.9%
12.3% U.S. 4.35%
Western Europe 4.41%
Indonesia 3.14%
Japan 1.24% Canada 0.47%
SubSaharan Africa 18.64%
Aus / NZ 0.36%
Hi Inc. nonOECD 1.51% Low Income 16.48%
China 15.34%
Mid Income 5.43%
87.7%
Eastern Europe 2.46%
Latin Am/Carib 8.63%
SubSaharan Africa 7%
Indonesia 3%
U.S. 10%
Aus / NZ 1%
Mid Income 7%
Hi Inc. nonOECD 2%
Eastern Europe 4%
77.1%
Japan 2% Canada 1%
Low Income 9%
India 17.55%
Western Europe 7%
China 19%
Latin Am/Carib 10%
India 18%
19 5 19 0-1 55 95 1 9 -1 5 60 96 1 9 -1 0 65 96 1 9 -1 5 70 97 1 9 -1 0 75 97 1 9 -1 5 80 98 1 9 -1 0 85 98 1 9 -1 5 90 99 1 9 -1 0 95 99 2 0 -2 5 00 00 2 0 -2 0 05 00 2 0 -2 5 10 01 2 0 -2 0 15 01 2 0 -2 5 20 02 2 0 -2 0 25 02 2 0 -2 5 30 03 2 0 -2 0 35 03 2 0 -2 5 40 04 2 0 -2 0 45 04 -2 5 05 0
Retirement Age with high growth in LDCs U.S. Life Expectancy and Retirement Age
88
84
68
Copyright Jeremy J. Siegel
Life Expectancy
80
76
72 0% 2%
Retirement Age 4%
64 6%
60 8%
56
Data from Future For Investors and other sources. 13
Retirement Age with high growth in LDCs U.S. Life Expectancy and Retirement Age 88 Life Expectancy
84 80 76 72 68 64 60
15.4 Years
Age Developing Countries High Growth
19 5 19 0-1 55 95 1 9 -1 5 60 96 1 9 -1 0 65 96 1 9 -1 5 70 97 1 9 -1 0 75 97 1 9 -1 5 80 98 1 9 -1 0 85 98 1 9 -1 5 90 99 1 9 -1 0 95 99 2 0 -2 5 00 00 2 0 -2 0 05 00 2 0 -2 5 10 01 2 0 -2 0 15 01 2 0 -2 5 20 02 2 0 -2 0 25 02 2 0 -2 5 30 03 2 0 -2 0 35 03 2 0 -2 5 40 04 2 0 -2 0 45 04 -2 5 05 0
56
15.9 Retirement Years
11.6 Years
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 14
The Global Solution The answer to our question: Who will produce our goods? Who will buy our assets?
Is the same: The Developing Countries By the middle of this century Developing Countries will own most of world’s capital.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 15
Stock Market Capitalization 2006 7.3%
Stock Market Capitalization 2050 33.0%
92.7% India 0.40% China 0.70%
Emerging Latin Amer 1.50%
Developed Asia ExJapan 3.50%
Low Income 6.4%
Emerging Eastern Europe / Asia 4.70%
SubSaharan Africa 4.2%
Indonesia 2.4% U.S. 16.6%
Mid Income 5.6%
Western Europe 8.8%
Eastern Europe 3.4%
Canada 3.50%
Japan 2.6%
Japan 10.30%
U.S. 46.00%
Western Europe 29.40%
Copyright Jeremy J. Siegel
Latin Am/Carib 10.6%
India 14.1%
67.0%
Canada 1.1%
China 20.3%
Hi Inc. nonOECD 3.1%
Aus / NZ 0.7%
Data from Future For Investors and other sources. 16
Conclusions
Developed economies by themselves will suffer lack of asset demand
Studies of asset holdings in 1980s and 1990s distorted by high returns. There will be much more net selling in 2010s through 2030s.
I believe that growth in developing world will offset slowing in aging economies and support future equity prices. But that support is essential.
Asset prices will be the signal to boomers how much longer they will have to work.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 17
Demographics and Capital Flows Prof. Jeremy J. Siegel The Wharton School September 7, 2006 Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 1
Long Term Demographic Trends Past marked by (1) rising life expectancy and (2) falling Retirement Age U.S. Life Expectancy and Retirement Age 80 Life Expectancy 76 72 68
Retirement Age
1.6 Years
15.9 Years
64 60 56 1950- 1955- 1960- 1965- 1970- 1975- 1980- 1985- 1990- 1995- 20001955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
But this trend Cannot Continue Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 2
Age Wave -- US
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 3
Age Wave – Japan
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 4
Big Questions The Biggest Questions Facing the Developed World Who Will Produce the Goods? Who Will Buy the Assets?
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 5
19 50 19 -1 55 95 19 -1 5 60 96 19 -1 0 65 96 19 -1 5 70 97 19 -1 0 75 97 19 -1 5 80 98 19 -1 0 85 98 19 -1 5 90 99 19 -1 0 95 99 20 -2 5 00 00 20 -2 0 05 00 20 -2 5 10 01 20 -2 0 15 01 20 -2 5 20 02 20 -2 0 25 02 20 -2 5 30 03 20 -2 0 35 03 20 -2 5 40 04 20 -2 0 45 04 -2 5 05 0
Retirement Age must rise dramatically U.S. Life Expectancy and Retirement Age
88
84
80
76
72
68
64
Copyright Jeremy J. Siegel
Life Expectancy
15.9 Retirement Years 11.6 Years
Age
60
56
Data from Future For Investors and other sources. 6
19 5 19 0-1 5 9 19 5-1 55 6 9 19 0-1 60 6 9 19 5-1 65 7 9 19 0-1 70 75 97 19 -1 5 80 98 19 -1 0 8 9 19 5-1 85 9 9 19 0-1 90 9 9 20 5-2 95 00 00 20 -2 0 0 0 20 5-2 05 1 0 20 0-2 10 1 0 20 5-2 15 20 02 20 -2 0 2 0 20 5-2 25 3 0 20 0-2 30 3 0 20 5-2 35 40 04 20 -2 0 45 04 -2 5 05 0
Improvement in 2004 UN Data U.S. Life Expectancy and Retirement Age
88
84
80
68
64
Copyright Jeremy J. Siegel
Life Expectancy
76
72
Retirement Age
15.9 2000 Model Years 11.6 Years
2005 Model
60
56
Data from Future For Investors and other sources. 7
Population profile in Developing World
Outside the developed countries, the population of the world is much younger.
Let’s look at India.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 8
Age Wave -- India
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 9
Exchange of goods for assests
Throughout history, the “old” have sold assets to the young in exchange for goods.
Today in US, Florida’s retirees sell assets to and import goods from other 49 states.
In the future the US will sell its assets to the rest of the world.
Success depends on rapid growth in the developing world.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 10
Population 2005
World GDP 2005
15.2% Indonesia 3.45%
U.S. 4.61%
Western Europe 6.14%
SubSaharan Africa 11.62%
Japan 1.98%
Canada 0.50% Aus / NZ 0.37%
Hi Inc. nonOECD 1.57%
Mid Income 5.61%
84.8%
53.3% Indonesia 2%
U.S. 21%
Mid Income 5% Eastern Europe 5% Latin Am/Carib 8%
Low Income 13.44%
Eastern Europe 4.60%
Low Income 5%
SubSaharan Africa 2%
India 6%
China 20.35%
Latin Am/Carib 8.68%
Western Europe 19%
Japan 7%
China 14%
Canada 2%
India 17.07%
46.7%
Hi Inc. nonOECD 3%
Aus / NZ 1%
Population 2050
World GDP 2050 22.9%
12.3% U.S. 4.35%
Western Europe 4.41%
Indonesia 3.14%
Japan 1.24% Canada 0.47%
SubSaharan Africa 18.64%
Aus / NZ 0.36%
Hi Inc. nonOECD 1.51% Low Income 16.48%
China 15.34%
Mid Income 5.43%
87.7%
Eastern Europe 2.46%
Latin Am/Carib 8.63%
SubSaharan Africa 7%
Indonesia 3%
U.S. 10%
Aus / NZ 1%
Mid Income 7%
Hi Inc. nonOECD 2%
Eastern Europe 4%
77.1%
Japan 2% Canada 1%
Low Income 9%
India 17.55%
Western Europe 7%
China 19%
Latin Am/Carib 10%
India 18%
19 5 19 0-1 55 95 1 9 -1 5 60 96 1 9 -1 0 65 96 1 9 -1 5 70 97 1 9 -1 0 75 97 1 9 -1 5 80 98 1 9 -1 0 85 98 1 9 -1 5 90 99 1 9 -1 0 95 99 2 0 -2 5 00 00 2 0 -2 0 05 00 2 0 -2 5 10 01 2 0 -2 0 15 01 2 0 -2 5 20 02 2 0 -2 0 25 02 2 0 -2 5 30 03 2 0 -2 0 35 03 2 0 -2 5 40 04 2 0 -2 0 45 04 -2 5 05 0
Retirement Age with high growth in LDCs U.S. Life Expectancy and Retirement Age
88
84
68
Copyright Jeremy J. Siegel
Life Expectancy
80
76
72 0% 2%
Retirement Age 4%
64 6%
60 8%
56
Data from Future For Investors and other sources. 13
Retirement Age with high growth in LDCs U.S. Life Expectancy and Retirement Age 88 Life Expectancy
84 80 76 72 68 64 60
15.4 Years
Age Developing Countries High Growth
19 5 19 0-1 55 95 1 9 -1 5 60 96 1 9 -1 0 65 96 1 9 -1 5 70 97 1 9 -1 0 75 97 1 9 -1 5 80 98 1 9 -1 0 85 98 1 9 -1 5 90 99 1 9 -1 0 95 99 2 0 -2 5 00 00 2 0 -2 0 05 00 2 0 -2 5 10 01 2 0 -2 0 15 01 2 0 -2 5 20 02 2 0 -2 0 25 02 2 0 -2 5 30 03 2 0 -2 0 35 03 2 0 -2 5 40 04 2 0 -2 0 45 04 -2 5 05 0
56
15.9 Retirement Years
11.6 Years
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 14
The Global Solution The answer to our question: Who will produce our goods? Who will buy our assets?
Is the same: The Developing Countries By the middle of this century Developing Countries will own most of world’s capital.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 15
Stock Market Capitalization 2006 7.3%
Stock Market Capitalization 2050 33.0%
92.7% India 0.40% China 0.70%
Emerging Latin Amer 1.50%
Developed Asia ExJapan 3.50%
Low Income 6.4%
Emerging Eastern Europe / Asia 4.70%
SubSaharan Africa 4.2%
Indonesia 2.4% U.S. 16.6%
Mid Income 5.6%
Western Europe 8.8%
Eastern Europe 3.4%
Canada 3.50%
Japan 2.6%
Japan 10.30%
U.S. 46.00%
Western Europe 29.40%
Copyright Jeremy J. Siegel
Latin Am/Carib 10.6%
India 14.1%
67.0%
Canada 1.1%
China 20.3%
Hi Inc. nonOECD 3.1%
Aus / NZ 0.7%
Data from Future For Investors and other sources. 16
Conclusions
Developed economies by themselves will suffer lack of asset demand
Studies of asset holdings in 1980s and 1990s distorted by high returns. There will be much more net selling in 2010s through 2030s.
I believe that growth in developing world will offset slowing in aging economies and support future equity prices. But that support is essential.
Asset prices will be the signal to boomers how much longer they will have to work.
Copyright Jeremy J. Siegel
Data from Future For Investors and other sources. 17
