What In The World

It Might Be Easier To Make Money From More Boring Things Than AI

I’m spending quite a bit of time thinking about long-term macro themes, to help me allocate capital (it’s my pension lol). Some might call it long term capital management but that phrase is tainted by historically being the biggest irony ever.

As part of my big boy thinking, I’ve narrowed down my ideas to a few different themes, which include really cool shit like robotics, AI, water tech, and smart cities. But this shit is all kinda speculative (well, the idea we might run out of water is not as speculative as some of the others, which is terrifying).

Besides being super speculative, another issue with some of the cool shit is that everyone else gets super excited about it too. And when everyone else is super excited about it, that makes it expensive. For instance, the Global X Artificial Intelligence & Technology ETF has a trailing P/E of 28.0.

Also, most of these tech themed ETFs are suuuper concentrated in the US, and as we highlighted on Tuesday US macro headwinds are severe and the US stock market is arguably way too expensive (it’s insane). Finally, loads of these tech ETFs have quite high allocations to Tesla (bun Elon) and Palantir (bubbly).

So in my attempt to escape high valuations (and Elon), I went to the super unsexy end of my major themes. Demographics. No one ever got excited about demographics, besides me 2 weeks ago when I saw this cool chart:

For those not good with shapes, the thing on the right is Africa and the thing on the left is a historic industrial superpower.

The (cool?) thing about demographics is that they are relatively easy to predict over the very long-term. And you don’t even have to do it yourself – the UN has a massive dataset of population projections for every country out to 2100. There are three variants for population growth, low, medium, and high. We’re going to use the medium variant throughout because that seemed the most sensible approach.

Demographics are also super important. The most basic decomposition of GDP is into capital, productivity, and hours worked. More people = more hours worked = more GDP. More GDP is often good for returns, although not always, e.g. China:

Diving into the UN data, at present, Asia is over half of the world’s population. Sub-Saharan Africa (SSA) is just 15% and Europe and North America around 14%. Boring, we know this.

Things get more exciting when we look into the projections, and we start to see some pretty monumental changes later in the century. I’m taking 2050 as somewhat of a “this is a relevant time horizon for a very long-term investor”, and by then, Asia has shrunk from 55% of the world population to 50%. The biggest shift is in SSA, rising from 15% to 22%, while Europe and North America are expected to remain roughly similar (14% to 12%).

There are a few things to pick apart here.

The first being what is going on in Asia. It’s well known how bad China’s demographics are (Mao’s one child policy was insane), but actually looking at the projections and things are actually batshit. China’s population is expected to decline, every year, from now, forever (well to 2100 at least). Projections are for a fall from 1.42bn people to 1.27bn by 2050 and 0.64bn by 2100. Wild. Meanwhile, India’s population is expected to expand until the 2060s.

If China failed to turn high GDP growth into strong equity returns over the last 20 years as the population grew steadily, as rural to urban migration took place, and as capital deepening continued, is it sensible to expect returns to be strong with a declining population, it being increasingly difficult to find poor rural people (there are still quite a lot but unsure there are 25 years worth), and with a capital stock which is arguably already way too high?

While China is uniquely fucked, there are some other markets that actually have some excellent demographics. These are down to a combination of factors such as expectations of improving life expectancies, rising median ages, and expectations of continued high birth rates. There is no guarantee that issues within these countries will be sorted, but jeeze the world is going to look very different come 2050 or 2100.

By 2050, Ethiopia, Tanzania, DRC, Nigeria, and Pakistan are expected to contain 13% of the world’s population, compared to 10% in 2024. This figure is projected to rise to 20% by 2100. This is a historic shift, and implies major global economic changes. More people in these countries means more consumption, more infrastructure, more healthcare, more GDP, more power generation, more of everything, including geopolitical power.

These countries are not famous for having a vibrant selection of investable public listed firms which might benefit from the coming population transition. In absence, the best way to get exposure may be to find multinational firms which might be well positioned to take advantage of these trends. I am not going to lie, micro is not my thing, so I asked Chat GPT to come up with some recommendations:

1. Consumer Goods and Retail: Nestlé, Procter & Gamble, Unilever

2. Telecommunications: MTN Group, Vodafone Group

3. Financial Services: Standard Chartered, HSBC, Ecobank

4. Energy & Infrastructure: China National Petroleum Corporation, TotalEnergies, Caterpillar Inc

5. Technology & E-commerce: Alibaba Group, Tencent, Amazon, Jumia Technologies

6. Healthcare: AstraZeneca, Johnson & Johnson

And yes, I deleted Tesla from the list.

So there we have it, some firms that might be well positioned to take advantage of humongous global demographic changes. And the good thing is, they aren’t insanely expensive. Finito :)

JB Macro is my blog, where I splurge out my brain. I’m building a following for my passion, writing about economics and markets, and it would be really great to have you on board. Please consider pressing the subscribe button below (it’s free!!). Thank you, James.

This newsletter is for informational purposes only. It does not constitute investment advice or an offer to invest. The views expressed herein are the opinions of JB Macro exclusively. Readers should conduct their own research and consult with professional advisors before making any investment decisions.