Investors devote countless hours searching for stock market indicators. They analyze earnings, dividends, momentum and esoteric theories looking for the ultimate tool. They rarely consider demographics, but that’s one of the most important long-term indicators.
Demographic data is a detailed look at a population. It breaks a large group into small units. Advertisers use demographic data to target key customers. They know, for example, intelligent and wealthy people are reading articles like this.
Economists also use demographics. They know it takes 20 years or more to change trends in the data. This means they can forecast growth decades from now.
To grow, a country needs a large working-age population. And right now, U.S. demographics are bullish.
Demographics and The Population Pyramid
Millennials are setting up their own homes and entering their peak earnings years. The chart below shows the population pyramid of the U.S.
Population pyramids break down a country by gender and age. It’s a graphic representation of the country’s economic future.
Earnings, investment and spending patterns are all tied to age. Individuals save when they are young so they can enjoy financial security when they are old.
When a country’s population pyramid is top-heavy, the economy suffers because older people work less and withdraw savings to support their lifestyle. When a pyramid is bottom-heavy, children consume the bulk of the resources and growth slows.
Looking ahead, the U.S. looks poised for growth over the next 20 years. In the charts below, the blue rectangle highlights prime working years. For growth, this is the ideal location for the largest population group.
The trend is bleak in some parts of the world. Japan will have a population that’s older than desired. Europe will as well.
For investors, these are areas to avoid.
The next charts show that Vietnam should deliver some growth for investors. Brazil is also a prime demographic buy. And Macau, a Chinese special administrative region, could be the fastest-growing area in the world.
Macao is the Las Vegas of China. Casinos and entertainment resorts fill the island. Melco Resorts & Entertainment Ltd. (Nasdaq: MLCO) operates several casinos in Macau and could be the best trade in the region.
Michael Carr, CMT
Editor, Peak Velocity Trader