Last month, I explored the implications of Africa’s demographic dividend for stock investors.
I don’t want to belabor the topic, but if that series of posts was interesting to you then take a moment to read through “Africa’s Demographic Freight Train,” by Greg Barker of the Mauritius-based asset manager, Sustainable Capital. I found it fascinating.
All Aboard the Growth Train!
Here are some of the report’s key points:
- Population trends are highly predictable. Like a freight train, they are rarely derailed. This makes them a highly useful complement to “bottom-up” stock analysis.
- Economic growth tops out when a nation’s population is dominated by young adults and brakes sharply as the overall population ages.
- Stock market returns generally reach their peak when the population is dominated by adults in their late-40s. This age group sees retirement on the horizon and prepares for it by saving and investing, thus driving up share prices.
- Bond returns hit their max when a population grays. Retired folks begin to shun stocks and replace them with fixed income investments.
- African nations are among the youngest in the world, putting them at the very beginning of the above cycle. Their current age distribution resembles that of the US circa 1960.
- Infrastructure constraints and instability resulting from high unemployment are the biggest threats to Africa’s economic and capital market growth.
- African banks, real estate companies, and consumer goods companies are particularly attractive ways to board the demographic freight train.
There’s loads more to digest in the report, so if you’ve read this far, please do have a look.