Population Series: Growth of Population and GDP - Considering India, Japan, and China
Our preceding quarterly essay (July 2023) was the first in a series on what effects population growth might have on the markets. These essays may be shorter than essays from prior years, but we feel the broad topic is among the most important, as we may be noticing the beginnings of an extended deceleration in the rate of population growth. We believe that dripping short essays over time is preferable to writing a minor textbook and distributing it one time.
There may be an important lesson to glean from contrasting the changes in population and economic activity of the entire world, India, and Japan over the last 30 years, while noting the general changes in the relevant stock market levels.
Since 1993 the total population of the world has grown 1.2% per year from 5.56 billion to approximately 8 billion today and the GDP of the world has risen 4.6% per year from $25.9 trillion to approximately $100 trillion today. We estimate that the combined world stock markets are at levels approximately six times the 1993 levels representing 6.15% compound annual returns.
World Gross Domestic Product
The population and GDP charts of many countries look rather like the world’s chart, but here is how India looks. We picked India because it is large and its importance may increase in the future, so it is worth studying.
India’s population grew 1.6% per year from 926 million in 1993 to almost 1.5 billion today while the economy grew 8.8% per year from $279 billion to approximately $3.5 trillion today. India’s primary stock market index, the SENSEX, increased to levels approximately twenty times the 1993 levels, representing 10.5% compound annual returns.
India Gross Domestic Product
On the other hand, there is Japan. Japan’s population was 124.8 million in 1993 and is approximately the same level today. The economy was $4.45 trillion in 1993 and is approximately $4.2 trillion today- that’s right, it’s lower! Japan’s primary stock market index, the Nikkei 225, experienced a twenty-year bull market that ended in 1989. The Nikkei 225 level was approximately 65% lower in 2010 vs the highs of 1989. And though it has increased approximately 200% since 2010, the Nikkei currently is still not higher than the peak levels seen in 1989, nearly 35 years later.
Japan Gross Domestic Product
From our perspective, steady long term population growth is the simplest and best fuel for economic growth, and economic growth positively affects the chances for higher and higher price levels in stock market indexes. However, we also believe segments of an economy can grow without steady long term population growth, but that is much more difficult to do, and it requires capitalists. Companies that increase human capital, increase efficiency/productivity, and/or innovate can be the engine for economic growth of a country, and we expect such companies may make attractive investments.
At the 2021 Berkshire Hathaway annual meeting, Warren Buffett highlighted that in 1790 the population of Ukraine was twice the size of the U.S., and Russia was five times the size of the U.S. Fast forward 283 years and look at us now. The U.S. has a population of 335 million and a $26.95 trillion economy; Russia has a population of 143 million and a $1.86 trillion economy; and, Ukraine has a population of 33 million and a $173 billion economy.(1) So, one can see that it is not simply a function of the number of people, rather the cultures, economic systems, and geographies allow for some groups to flourish, while others limp along.
Also at the same 2021 Berkshire Hathaway annual meeting, Warren Buffett indicated that in 1989 thirteen of the top twenty companies in the world were Japanese companies and six were U.S. companies. As of March 31, 2021, Buffett noted that none of the largest twenty companies were Japanese, and 13 were U.S. companies. In the late 80’s and early 90’s, Japanese businesses were broadly deemed to be intellectually superior and more disciplined. Phrases such as “Japanese think about the next decade, while Americans can only think about the next day,” were used to express the perceived superiority of the Japanese. The iconic Pebble Beach Resort in Monterey, California, home to a tremendous amount of U.S. golf history, was purchased by Japanese investors. We recall surveys that U.S. citizens indicated being more afraid of Japan than they were of Russia. Perhaps the change over the prior decades in Japan is well summarized by the expression Scott heard from Rickson Gracie, arguably the best martial artist of all time, “Japan went from the nation of the samurai to the nation of Hello Kitty.” We think China might well be on the same path as Japan, so stay tuned for the next installment.
Redmond Asset Management, LLC October 2023
The opinions contained in the preceding commentary reflect those of Redmond Asset Management, LLC (RAM). The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Redmond Asset Management, LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions.
Redmond Asset Management, LLC is an independent, SEC registered investment management firm located in Richmond, VA and is not affiliated with any parent organization. RAM was founded in 2005 and registered with the SEC on December 22, 2005. The company offers investment management services for equity, balanced and fixed income portfolios to corporate, institutional, and individual investors.
