Demographic trends might make you reshuffle your portfolio.
If there is one single factor that will affect which regions of the world will perform best in the years to come, it is demographics.
An ageing population is one of the biggest challenges the West faces, or so many people claim. They say that emerging markets have the drop on us, because they are in the middle of a youth bulge, and will soon overpower our creaking, decrepit economies.
But demographics isn't simple, and what actually happens is all too often rather different to what the experts predict. Even if emerging economies do have the edge, it may not last for long.
This green and fertile land
Everybody agrees that spoiled Westerners are too selfish to have babies, leading to plummeting fertility rates, too few workers and too many pensioners.
But demographic trends can quickly reverse. Just look at the UK. In 2001, the total fertility rate (TFR) in England and Wales fell to an average of 1.63 children per woman. Given that the population replacement rate is 2.1, we seemed in danger of dying out. Then look what happened. Last year, the TFR rebounded to 1.96, the highest since the 1970s.
True, much of that came from immigration (25% of births were to mothers born outside the UK in 2009, up from 14% in 1999), but also a surprise increase in fertility rates in women over 40. No demographer predicted that. The average UK-born woman now has 1.84 children, up 10% in the last four years.
Whatever you think about immigration, we ain't dying out. Our population is rising faster than many people would like. And we're a lot more fertile than many supposedly more dynamic countries.
It's the demographics, stupid
Look at China. It has a population of over 1 billion. It is awash with workers, its economy is expanding, it's going to take over the world… er, no it isn't. Its one-child policy, implemented 30 years ago, has left the country with a dismal TFR of just 1.14 children per woman.
Worse than that, 120 baby boys are born for every 100 girls, which is what happens when you combine a traditional preference for males with modern clinical procedures such as sex tests and abortion. That will leave a surplus of more than 40 million Chinese men by 2020, who will never marry or have children of their own, forcing the fertility rate even lower.
Can an economy continued to grow at 10% a year when its population is ageing and shrinking?
Sun sets on the East
China isn't the only country in the supposedly booming Far East facing demographic meltdown. The region faces far more severe problems than the West.
There are 228 countries in the UN's TFR rankings, and the Far East is right at the bottom. Japan and South Korea are equal-223rd with a lowly rate of 1.21 child per woman, followed by China (1.14), Singapore (1.09) and Hong Kong (1.02), with Macau (0.91) the least fertile land in the world.
These countries face a double problem, because they aren't just running out of babies, their wealthy populations are living longer, placing an even greater burden on the dwindling band of youth. Even worse, experiments with boosting the population through immigration, notably in Japan, have foundered.
So next time somebody tells you the balance of economic power is irretrievably shifting from West to East, tell them it might not last.
Russian population roulette
China isn't the only BRIC nation facing demographic doom. Some experts have claimed Russia could lose a third of its population in the next 40 years, although things aren't quite that bad.
Back in 2000, Russia's TFR was a barren 1.19, but this has steadily risen to 1.53 today (according to the country's own statistics rather than UN figures I have used elsewhere).
Russia also has a big alcohol problem, which is responsible for more than half of all deaths among people of working age. On current trends, one in four men will die before age 55 from drinking, either directly or indirectly. Lung cancer will claim many more, with tobacco-related death rates more than twice that in the West.
If you thought the Russian economy was in a healthy long-term state, think again.
Brazil's TFR has plunged from 6.2 in the 1960s to just 1.9 today. That's what prosperity does for you. Its population of almost 200 million is still younger than the West, but this won't last forever.
If you're wondering which BRIC to invest in, demographics would point to India. It still has a robust (if falling) TFR of 2.81. As it becomes wealthier, birthrates should continue to fall, but it will remain a young and dynamic country.
More eurozone woes
If the UK is relatively healthy, the eurozone looks in demographic trouble. The Italians and Spanish are supposed to love children, but they don't much like having them, with TFRs of 1.38 and 1.41 respectively.
The Greeks can't rely on the next generation to bail them out of their current woes, with a limp TFR of 1.33.
And how long can the German economic powerhouse lays ahead with a TFR of just 1.36, especially given the country's failure to successfully integrate its more fertile Turkish immigrant population into the workforce? We can never write off the Germans, but we might run out of them.
If there is one certainty about demographics, it is that nothing is certain. Muslim countries still have the relatively high fertility rates, but they are falling at the fastest rate. On current trends, Algeria and Morocco (both 2.38), Turkey (2.14) and Tunisia (1.93) are heading to European TFR levels, while Iran is below its replacement level at 1.71.
US exceptionalism
Demographics is a fascinating subject, but how should it affect your portfolio?
It's certainly knocks the long-term China growth story, and suggests Japanese-style stagnation could spread throughout the Far East. It should also make you worry about Russia, and even raise one or two doubts about Brazil. It also looks like bad news for Europe, with the exception of the UK and Scandinavia.
As countries develop, their fertility rates fall. With one notable exception. The US, which boasts a TFR of 2.05. Immigration from Latin America has certainly helped. The future still looks fecund for the US.
More from Harvey Jones:
> For two weeks in September we will be opening the doors of our Champion Shares PRO newsletter service. In order to keep our exclusivity, only a select number of our readership will be able to join us. This is your chance to guarantee your place! Click here to join the priority waiting list.
