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CHART 1: CHINA POPULATION DISTRIBUTION 2015 100+ ; 95-99 | 90-94 it 85-89 OE 80-84 eee ee 75-79 | | 70-74 a 65-69 EE 60-64 ee y ed a 2950-54 NN EE—E>E=—E—E—E—E—Ee 45-49 ——_ee 40-44 Le 35-39 NN EE—E—E—E—E—E—E 30-34 CONE —————e——~E TE 25-29 _ eS ee 20-24 EEE 15-19 (I 10-14 aaa 5-9 EEE 0-4 (Ee 6% 5% 4% 3% 2% 1% 0% 1% 2% 3% 4% 5% 6% While we consider demographics as an important long-term factor for investing (as discussed in the Third Quarter 2015 issue of Global Foresight: Investing for the Ages), in the short run, it is eclipsed by economic cycles and political changes. For instance, Japan’s and Germany’s economies have each been performing well over the last few years, despite being the second and third oldest countries in the world with the median population age of 47 years (Monaco has the world’s oldest population at 52 years). However, in the longer run, demo- graphics factor into economic growth as consumption declines dramatically in your 50s and 60s from where it is in your 30s and 40s. Health care burdens also increase and presumably need to be funded with higher taxes that will eventually weigh on the disposable incomes of younger workers. The largest emerging market, China, has a median age comparable to the U.S. and arguably has far worse demographics as China faces a big decline in new workers over the next ten years when the number of retirees may exceed the number of new entrants into the labor force as shown in CHART 1. South Korea is the oldest emerging market with a median age of 41. East Asian economies, including Japan, have grown over the years due to migration from villages to urban centers, resulting in productivity gains that have fueled economic expansion. Although this migration may continue a while longer, EM investors should understand the reality that the economic growth case outside of South Asia and Southeast Asia is mostly limited to productivity gains. India has the best demographic profile of any major emerging market as shown GLOBAL FORESIGHT THIRFD QUAPTER 2017 "...in the longer run, demographics factor into economic growth as consumption declines dramatically in your 50s and 60s from where tt is in your 30s and 40s." in CHART 2, with progressively younger population brackets getting steadily larger, indicating a stable increase in labor force for long-term economic growth. Young Ideas Japan has seen a long, steady economic recovery behind the market-friendly policies of Prime Minister Abe. The U.S. has experienced slow but consistent growth, arguably being driv- en more by its culture of innovation and leadership in the tech sector that has led its market’s returns. By com- parison, Europe has been plagued by infighting and rotating eco- nomic and political crises for most of the last nine years. In addition, when we consider the challenges to growth Europe faces longer-term as a result of its aging populations, it would seem difficult to make the case that the bull market centered in the U.S. may see its next leg driven by its counterparts across the Atlantic. However, we see the European continent energized by the electoral suc- cess of 39-year-old Emmanuel Macron, who not only won the French presidency in May, but also a strong party majority in its legislative body, the National Assembly. This mandate should pave the way for economic reforms that we believe in- vestors will embrace. It is a massive change in sentiment from six months ago when markets were fearing the “anti-European Union” rhetoric of since-defeated Marine Le Pen. Unifying Europe is no easy task, but the best chance appears to be in the hands of a political outsider with pro-business and economic policies that manage to be sufficiently main- stream to keep France from fracturing into far-left and far- HOUSE_OVERSIGHT_012082