Rethinking "Demographics Risk"

Lessons from Japan

East Asian countries like Japan, China, and Korea are grappling with some of the most daunting demographic challenges. The issues of declining birth rates and aging populations regularly dominate news headlines.

There’s no denying that these are real challenges at a macro level — rising healthcare costs, mounting debt burden on countries, and so on. But I’m a stock investor, not a policymaker or economist. And the question I’ve pondered is: is this really something that we, as investors, should lose sleep over?

Japanese companies were the first to face these demographics issues, and now their neighbors, Korea and China, are following suit. This problem is not just confined to East Asia however; some Western countries are also on a similar trajectory, suggesting that this may soon become a global phenomenon, if it isn't already.

Despite the pervasive gloom and doom, I have come to believe that demographic risks are overblown. I will explain my reasonings in this memo, drawing primarily from my experience investing in the Japanese market, although I believe these arguments apply to any country facing similar issues.