Global Demographic Trends and What They Tell Us about Latin America and the World

MARIA DEL PILAR AMADOR: Thank you very much, Julie, for this introduction. Welcome to, everyone, to this first Latin-American Investment Conference. I would like, now, to introduce our tonight's speaker, Mr. Clint Lauren. Mr. Laurent, he's CEO and founder of Global Demographics LTD. And director at Global Demographic Health LTD. He's an analyst off and commendatory of global population and socioeconomic trends and their impact in the world economy. Dr. Laurent is an experienced advisor to multinational businesses, and a frequent speaker at conferences around the world. Dr. Laurent holds a master's degree in business from Victoria University of Wellington. And a PhD in marketing, and associate's from Bath University. Please welcome, Dr. Laurent. CLINT LAURENT: Thank you very much for the kind introduction. Good evening everybody. Good afternoon, or late afternoon. You're probably wondering why demographics at the start of a conference on investment. I mean, investment requires that you're on your toes all the time, monitoring change, anticipating change. And often you're really only looking a few days ahead, or weeks ahead, and occasionally a few years ahead. So why on earth worry about demographics? But the thing is this, demographics change just quietly in the background. And suddenly you wake up one morning and you suddenly realize that the target market that you thought company x was going to do really well out of no longer exists, because they've all got older one year at a time, with the exception of myself, of course. But you know, people's age profiles change. Their income profiles change. Working habits change. And the yield opportunities that you thought were really comfortable disappear, and they reappear somewhere else. So what I'm going to try and achieve in 45 minutes tonight, because we've only got 45 minutes, and we've got to cover the world so it's a bit of a go. But what I'm going to try is identify some really, as I'll show you, four major demographic issues. I"m not going to say trends. They're issues that you should be wary of and then apply them to your own market focus and see what it means for you in terms of you, where you invest. Now just before I get into the presentation, I assure you this is not a sell. It's just a credibility issue. Basically, my company started in 1996. We had data strings go back to 1984. My PhD is econometrics. Demographic data is just beautiful for an econometrician. You don't have random movements from the data to the same extent as you have in financial data. So for example, birth rates tend to follow a trend. They might move around the line a bit but they follow a trend. And the same for death rates and everything else. So generally speaking, the demographic data that I forecast, as I present to you today, we have an error of plus or minus 2% after 10 years. The unknowns in the demographics are largely immigration, because that's determined by the governments of various countries. So that can cause a bit of a shock. But generally speaking, immigration doesn't get big enough for most countries to be significant in its impact. So that's the one thing you've just got to be a bit careful on I will talk about household incomes. Household incomes are a function of how the economy is going. That of course, is much more of a turkey shoot. So we've got to be a bit more careful there. We tend to have fairly conservative GDP and household income forecasts. So if the opportunity looks good on our numbers you probably can move forward with a degree of confidence on it. So that's just to give you a perception of it. We cover 78 countries so we know what, if you like, the global trends, and how things will move. So we've got a good database there. And we cover China down to county level. 2,200 counties. India down to province level. So we've got state level, I beg your pardon. So again, we've got good data on the really big countries. So there's a big database behind what I say. You've got more slides than what I'm going to present. And you will be able to access that. That's quite deliberate so you can go back to the key issues. And finally, I've taken a fairly global view, because I guess your investment is not just going to be South America. I know that's your focus. But what's happening in the rest of the world is fairly important, as well. So a global view with that slight touch. OK. What are the big messages I wanted to get across? I'm going to put the headlines up right now. 10 years ago the mantra was, go for use, go for the emerging markets, and you'll make a bundle of money. And actually, in many ways, it wasn't bad advice. But my advice is between now 2016 and 2026, get out of the youth markets as fast as you reasonably can. Now, I notice that it sounds pretty erratic in nature but I'll explain why in a minute. Secondly, the redefinition of working age. I so often see reports by various investment firms, certainly the big investment banks. They do not understand how the concept of work has changed in the world. And because that has changed it actually means the nature of household incomes and the earning power of households has changed dramatically, as well. And so I'm going to signal what's happening in some of the key parts of the world and then you look at your own country, or your own investment area and ask yourself, is that happening there? And if it is, it actually creates some very interesting opportunities. Thirdly we need to redefine what is emerging middle class. This is a bit pedantic. But I'll just show you how the world income structures have changed. And so perhaps, you might want to shift your focus, in terms of income breaks. And then finally I'm going to put it all back together, because we're going to be talking about how age is changing. And I'm talking about incomes and working ages changing. If you put the two together, you actually get some incredible stories or both growth and decline. And that is really what is very important to understand, because those are the really good opportunities. I can identify slots for you in the world which will grow at 27% per annum for the next 10 years. And those are the sort of slots that you want to be looking at from a consumer point of view. And just finally, appreciate my focus is on consumer products, because that's where people and population tend to lie. OK the first one stop thinking about the youth market. Here's the world. Now, when I say that, we actually exclude sub-Sahara, Africa, because we don't have good data. We've got Nigeria, Kenya, and South Africa in there, but not the other countries. So it's excluding the rest of sub-Saharan Africa. The blue is 10 years ago. The orange is right now, 2016. And the gray is 10 years time. And a very simple message, see the three age groups that I've boxed out? For the next 10 years they show virtually no growth at all in the number of persons in that segment. There's a lot of people there. On average 60% of the world is under the age of 40. But the big messages for you, on average, across the world, excluding sub-Saharan Africa, the under 40 age group shows no growth at all. Now, think of that from a yield point of view. You might have a really nice little business that's doing nicely in the under 40-year-olds. And you've got another little business doing very nicely in the over 40-year-olds. If they're both the same, the one in the over 40-year-olds, as you can see in the next two bars shows phenomenal growth in the number of customers. So your yield profile is actually going to change quite dramatically, simply because of the population. Now, I know at least half of you are sitting there and saying, uh-uh. This guy says he's an econometrician, thinks he understands statistics. Doesn't he know that averages are misleading? And they are. But I'll tell you what, in this case it's not too bad. But before I do that I want to explain also why these age groups are important, because that's quite critical to when we look forward. Children and families stage, which is the null to 14-year-old, they have high expenditure associated with them. It's largely non-discretionary, because families don't have a lot of money left over, pretty much in every country the world when you've got one or two children in the household. That's just a reality. They spend a lot but it's not really discretionary money. It's paying off the house or renting the house. It's equipping the house. It's education. It's clothing. There's not a lot of fun in there at all. Young adult, interesting group. That's 15 to 25, or 24. Appreciate it's really dichotomous in nature in the, what I will euphemistically call the developed world, generally speaking, this age group, half of them are still in education, up to about age 18 or 19, and not earning money, and actually don't have a lot of money to spend. In the less developed world they're entering the labor force at 15, but they don't earn very much money, because they're in that part of the world. So appreciate it's quite dichotomous. 25 to 39. That's the mums and dads. I've already explained the lack of discretionary money. And then there's the 40 to 64. Now, this is what you call the golden pot for the next 10 years. And it's the golden pot. Those of you that are sort of towards my end of the age spectrum probably have heard those wonderful words, Dad, I'm leaving home. They are just wonderful, because it works like this. Let's say you're in a household of three. And the household income is 60,000 US dollars. Doesn't matter what figure you choose. 60,000 divided by 3 is $20,000 per cap in the household to spend. But if the kid leaves home you've still got the same number of earners in the household, and it's 60,000 divided by 2, which is $30,000 per head. A 50% lift in the household income not doing anything, except helping them move out, which you do very kindly with tears and then celebrate afterwards. Now the interesting thing is the 40 to 69, as you can see on this chart here, the global picture, is one of the highest growing age groups in the world. At the moment it's 1.7 billion. It goes to 1.9 billion in the next 10 years. That's another 200 million people moving into that age group in the next 10 years. And what do they do? They spend differently. Remember, they've got the house. It's equipped. They've got a job. They've got to the career. They move from buying things. They're buying experiences. And they're not tied to things like school holidays. They can travel when they like. All of those sort of issues. I don't know to what extent you've come across, it's an old theory, it's called Maslow's Need Hierarchy. But these people have got above safety and essentials, and they're into self-actualisation. So it's wellness. It's travel. It's media, being informed. It's experience, you know, food. You don't just go to a restaurant now. The restaurant has to have a theme. The food has to be of a particular quality. It's all much higher margin stuff. I mean it's actually quite good to look at Western Europe for an example of what will happen, because South America is obviously slightly younger, pleased to say. And just look at what's happening in Europe. Through growth of airlines like EasyJet, Ryanair, the growth of all the restaurants, all of that area, is a function of the growth of this group. So it's there. And it's going to happen, because they're already alive today. They're just going to get 10 years older. So that's really important. Then we've got the 65 plus. A warning to you, don't write them off as old, retired, fixed income, and waiting to die. And I'll come back to that a little bit later. OK. The issue of averages. You immediately thought, OK, the world global average is the global average. It's influenced by North America, Western Europe, and what we call, affluent Asia, which is Japan, South Korea, and Taiwan, and Australia. All of which tend to be older countries. But here you are. You've got developing Asia, which is Indonesia, Malaysia, Thailand, et cetera, India and South Asia, which is Bangladesh and Pakistan. And even in that part of the world you'll see the 15 to 24-year-old group shows no growth at all in the next 10 years. Marginal growth in the really young group, null to 14. A little bit of family growth still. But again, look what's happening at the 40 to 64 age group. A huge lift happening in the next 10 years. And it's a great opportunity. Again, I stress, I have no relationship with these companies. So it's totally unbiased or anything like that. But if you want to look at an example, in India, Reliance. Is a very big company in India. Used to be in all sorts of pedantic little things. And it's discovered now, products like insurance, and hotel chains, and things like that, all aimed at the 40 to 64-year-old. They're being smart and moving into that. So as you can see, even the so-called, young countries of the rest of the world are old. Sorry, the growth is in the old area. The 65 plus, all the older countries. And that's Western Europe, and North America, and the affluent Asia, as I defined it. You can see even the 40 to 64 has no growth now. It's 65 plus. So it sounds really bad. And that's why everybody writes those markets off. I would stress to you, just one little caveat here, USA as opposed to North America has a slightly different age profile, because it's had a fairly consistent immigrant intake every year and migrants tend to be younger, it does mean that child and family stage has been sustained higher than what would have been from the natural pattern. So that's the one that's slightly different from the rest. But the reset, Japan, all of those, everything under the age of 64 is either flat or declining in size. Now, I always like to put one great business opportunity in front of every audience. This chart stands the opportunity to make every single one of you a millionaire in five years time. You just have to take my advice. Trust me. And I'll give you my bank account details later, OK? But China, which as everybody knows, is a relatively old population because of the one child policy, which was pretty much introduced in 1984. But what happened in China is they also introduced compulsory education, initially to age 12, so every five to 12-year-old went to school. No matter what gender or whether they were urban or rural. So it meant a girl in a remote village was educated as well as a boy in Shanghai or Beijing. What this means is when that boy or girl got to around about 15, because compulsory education got crept up over the years, he or she got on their bike and went into town. And they tripled their income over what their parents were earning, which is really was lifting the productivity of China dramatically. It was one of the big drivers. But this happened 20 years ago. And on average it was about 20 to 28 million people a year made this transition. Now, 20 years ago they got married relatively young, cause it was slightly more traditional. So most of them were married by age 24. 20 years ago, because the one child policy, and they were now living in an urban area where they didn't get free health and education, et cetera, they tended to have their one child fairly quickly, which means now, 2016, the urban population of China has this huge bias to 40 to 64-year-olds. And in the next 10 years it goes from 300 million people, middle class, to 400 million. That's a 33% lift in a group of consumers living in key urban-- well, in urban areas. There's 600 urban areas. But I'll narrow that down for you a little bit. Living in urban areas, got a reasonably well-equipped household. Typically now with an urban household income of 15 to 30,000 US dollars. So they can afford all sorts of things. Changing their livestocks. They've equipped everything. They are now, like everybody else, moving to experiences, which is domestic airlines. It's travel. It's wellness. It's health. All of those sort of things. And it's just going to go through the roof in the next 10 years. It's an opportunity, and if you can get to it you shouldn't miss it. Now, interesting as I was saying, how things creep up and people don't realize. Look at the middle group. The 15 to 24-year-old. It's 102 million in the next 10 years. It drops to 88 million. That is Yum Foods, Kentucky Fried Chicken, and McDonald's. That was their platform. And guess what Yum Foods and McDonald's have done recently. They've basically decapitalize their position in China. Both have sold out to local partners, either through franchises or group, because opening extra outlets in China doesn't make any more money now because it's actually diluting the customer base per outlet. So the profit surge is no longer there for them so they have got out and moving on. They're looking for new opportunities, new types of restaurants and things, and China is no longer it. Unless they can come up with something that works for a 40 to 64-year-old. But it's a really good example of how things creep up. Yum Foods has been a client of ours for some time. They were aware, and made the move before McDonald's. They were aware this was coming. And they prepared for it. And now they're preparing for other opportunities. And this is why you should look at this data and say, OK, in your investment horizon, with its geographical, or time based, what is going to happen in the age profiles of your markets that suddenly says, market, there was a huge growth and market share opportunity in growth in people, affluence suddenly disappeared. It's got a declining customer base. It doesn't matter what they do. The number of customers goes down. And that's what you've got to be ready for, OK? Now just very quickly. I put these two in. This is Brazil and Chile. They're the older countries in South America. I'll just show you. You've got pretty much the same pattern happening here. Anyone from either of those two countries, let me assure you, you still look young. It's OK. You're just relatively older. And then the rest of South America are relatively young. And you can see a little bit of growth in 15 to 24, 25 to 39. We have detail by individual countries. If you want it at a later date that can be provided. Really the purpose of these two slides is just to make the point, South America's really no different from the rest of the world in this aging trend. OK. Now we're going to move on to a couple of things. First of all, I put this in. It's a little off focus. But I always like to put it in because it's quite important. I've always owned my own business. I've always had a mentor. Work out where the money is and go there. So just a last point, because we've been talking about the old world, which is now moving into the 40 plus growth area, or even 64 plus. Why is it important? Well, in terms of consumer spending, affluent Asia, which are redefined just in case you missed it, Japan, South Korea, Taiwan, and Australia. Western Europe, which was Germany, UK, all of that area. North America, which is Canada and USA. Those three regions count for $0.66 out of every dollar that is spent by consumers in the world. So $0.66 out of every dollar spent in the world by consumers is in those three regions, which account for 16% of the world's population. So you can see that they are very important. Whatever happens in those markets is going to have implications for your exports. It's going to have implications for investment flows. All of those sort of things. So you need to watch them carefully, as I'm sure you do. China, interesting 10%. China interesting because we still see China growing. We see it growing at 4% per annum. Not six or seven. But even at 4% it'll lift from 8% to 13% of the world's consumer spending in 10 years time. So that's a growth segment. And obviously you can see Central and South America is actually the next most important and 8%. India, it doesn't really appear. As you can see it's just on 3%. And it doesn't achieve the same growth. And I'll come back to why a little bit later. So that's where the money is. So you always keep your eye on those regions of the world, because they're going to have implications for you. I'll skip the next two because you can read them as we go. It just demonstrates how strong it is. Right, the next thing I want to look at is the labor force. And the reason why it's relevant is I've shown you the world's getting older. And I've shown you there's an awful lot of people age 65 and above now. And you've been thinking if you're a young person, well, first of all, they can't read and write. They can't find their classes. And they don't have any money. And so we're not going to bother with them. Well, the world is changing. Here's a question for you. I won't ask anyone to answer. So don't. But in your head, answer this question. What proportion of Japanese males age 70 to 74, really old, 70 to 74 year olds, what proportion of them do you think is in full time employment today? OK. Put the number in your head. Right, got it? The answer is 24%. One in four males in Japan, age 70 to 74 is still in full time employment. You'll think, yeah, well that's obvious. That's Japan. We all know it's the oldest country in the world just about. It's the second oldest actually. We know they live to 88 years of age. So yeah, that'll be there. OK. USA. Exactly the same question. Males, 70 to 74 what proportion do you think are in full time employment? 22% based on the latest data from the Labor Department. In the UK it's 23%. Germany, it tends to be a little bit lower in countries where there's a very good social net. So Germany, France, Spain et cetera, it drops down to the 20s. But not much below 20. But basically the phenomenon of the older worker is very, very real. So that's really quite an important point to keep in mind, because as I showed you, where the money is in the world tends to have a lot of 65 pluses. And instead of writing them off as households with a fixed income, and don't need to worry about them they're not going to spend any money, in some of the countries, such as Japan, certainly two out of every ten households still has an income coming in, and still has money to spend. And more importantly, think of the implications of that for pension funds or the whole pension industry. Again, to come back to Japan, official retirement age in Japan is 64, or was. Up to 64 Japan has the strictest labor laws you could probably imagine. It's very difficult to fire someone, for example. After 65 there is no labor law. It's a free market. So the person can renegotiate all of the salary etc. And this basically is working out very nicely, because well, a Japanese who's 74, male or female, is educated, they're going to live to 88, they don't want to sit at home and do nothing for the next 28 years. And like everybody else, they have pension and security. So by staying in work they continue to contribute to their pension, and conversely don't draw down on it. So the pension drawdowns are less. The pension contributions are going up. And the pension industry doesn't have nearly the problem that everybody thought it was going to have in Japan. The same is happening in a lot of other countries. So it's really a very significant change. And the thing is it's going to get more important, not less important, as life expectancy increases. Now, the other issue of labor forces and productivity is education. And the world is actually quite dichotomous. Now, I've got a little bit of a misleading chart, I'm sorry, but it's the only way I can do it. The left hand chart is what we call an education index. If a country is past 200 on the education index it means that most people in the labor force have something equivalent to at least lower secondary education. And might have even started upper secondary. So it's a labor force that pretty much everybody can read, and write, and follow instructions. Below 200 it falls away quite substantially. And as you can see India, South Asia, and Africa are all below that 200 line. It's improving in the right hand chart I show you the rate of improvement. It's good. It is improving in the areas where it needs to improve most. The good news, for example, is India, last year for the first time had every five to 12-year-old, irrespective of gender irrespective, irrespective of geographical area, in school. That happened last year for the first time. In comparison, China achieved that in 1984. That's the difference between those two countries. So it's good it's getting there. But let me put a little bit of negative news out for you. It's in the blue box there. It's a little bit of a back of the envelope calculation. But we took all the countries where education is, shall we say, substandard. And we took all the people who are turning 15 in those countries, because in those countries that's typically when they've entered the labor force. Sometimes earlier, unfortunately, but certainly 15. You know what? There's 99 million people this year who are turning 15 who probably have nothing more than primary education. And they're going to be looking for work. And the problem facing the world is, will it have enough jobs? And I can tell you now, it won't. I've got to slide a little bit later, which I'll skipped over, because I've covered now. India needs to find 8 million extra jobs every year to maintain its present level of employment. For the last five years its found three million extra jobs. So in other words, five million extra unemployed every year for the last five years. That's 25 million extra people wanting work who can't get work, and therefore can't provide for their families, et cetera. So while there's lots of good news amongst the demographic data, just be aware that there's some real big disasters out there, which the world's going to have to handle. I mean, this issue of the 99 million, as you'd appreciate, actually is probably bigger if you include the sub-Saharan African countries, which we don't have data on. So you could be talking about a hundred million. Overlay that, robotics, coming in from the other end, and suddenly you do have a potential social disaster emerging. So be careful about that. The re-redefinition of working age. I've explained now, it's significant. The really important one is this, at the bottom there you'll see, Western Europe, North America, and affluent Asia. The dependency ratio of those countries does not get worse. You know, the story is they're running out of 15 to 64-year-olds. The don't have enough workers. They need to bring in extra workers to look after all the old people et cetera. In reality, because of the extension of working age, and the increased participation of females, which was on the previous slide but I've flipped through because you can go back to their later, increased female participation, means in actual fact, the number of workers per dependent hardly increases at all. And it also means, of course, that all those older households, which are in those particular areas, actually are quite affluent and provide an opportunity. OK. A couple of other points. Just in labor force. Just rounding up. Got to be careful about time management here, but I do want to do it. China, you've heard the top line figure. The top line figure says, see, starting at 758 million. Dropping down to 6232 million is the old classic of working age people. That's people aged 15 to 64. Sorry, that's the number of people in employment. And as you can see, the total number of employed people has peaked at 761 five years ago, dropped a little bit to this year, and then drops down to 632 million by 2035 in 20 years time. And a lot of people say, ah, that means that China's GDP growth is going to slow, because the number of workers is going down in China. Just be careful about that. And it's in the two lines below. The orange line is the rural worker. The blue line is the urban worker. Rural China is significantly older than in China. And therefore, and they're very poorly educated, have had a much worse nutritional history, so much worse life expectancy. And therefore, the number of people dropping out of the labor force in rural China is extremely high, whereas urban China, helped by rural to urban migration by the younger people means that the urban labor force, while the growth rate slows, it doesn't go negative. So it does have some extra legs there. So just be aware of that. And don't assume the top figure, which is that the labor force in total is shrinking. Again, a slight digression, China's happy with that for two reasons. A person farming land in rural China can sign over the use of that land to their neighbor for feed. So what is happening is rural land is being aggregated. And therefore it pays to put capital behind it, like a tractor because [AUDIO OUT] [LAUGHING] AUDIENCE: [INAUDIBLE] CLINT LAURENT: Yeah, OK. All right. You can hear me from here, as well. OK. Now I lost my-- so they can put tractors onto the fields, and get greater productivity out of the rural area, which is quite important. So they're OK with that. Right. Let's [INAUDIBLE]. India, I've explained this chart to you. It's the one on the left. They simply can't find enough jobs now to keep the surge of what people used to refer to as, the demographic dividend of India, is no longer going to be a proper surge. Now, this gentleman is-- [LAUGHING] I hope we're not on the stream. For the people live streaming, we have a technical problem. OK. You all right? If he tickles I'm going to laugh. OK. What is middle class? Right? OK. We need now my third theme. And I may [INAUDIBLE] time. Good. We're back. Third theme is you need to redefine your perception of what is middle class. 10 years ago the popular mentor was 10,000 through to around about 20,000 US dollars, was a growth market opportunity. Some people used to do PPP. I don't know what's your personal view on this. My advice is to avoid PPP adjustments like the plague. First of all, you appreciate that concept was developed in 1870. And it actually applies to non-tradable goods only. And most economies are now based on tradable goods. So you really shouldn't use it at all is my advice. So we'll stick to 10,000 to 20,000 US and adjust it. Now, it was really good advice. As you can see, the orange box at 1,826 million people grew to 1.5 billion people by 2015. So it basically doubled in size. So it was actually a smart move to focus on the growth in that area. And if you found some good investments that leveraged that, good on you, well done. But now you're going to have to get out of those ones, because look, the next 10 years, the orange box shows virtually no growth at all. It's not a field you want to be in. It will continue nice steady sales. But it certainly won't necessarily show you the yields that you want to show through to your clients. So you need to start rethinking. Now, another overlay. My principal clients are companies such as Procter and Gamble, Unilever, Coca Cola, et cetera. And the story I used to get back from most of them was, you don't make profit out of a household with an income under 20,000 US dollars. I mean, you take the Philippines, for example, a huge number of people fall into that 10 to 20. But they buy shampoo by the per use pack. Or the cigarette buy the stick. And by the time you've done packaging and all of that. You actually don't get a very good margin. You just need a few little hiccups in either the tax law, or packaging, or pilfering, and the margin's gone. But 20,000 to 50,000, again, is a very nice sweet spot. It's where you can make money from it. So look what's happening there. It's he gray box. It's 1.2 billion people now. It's going to go to $1.78 billion in 10 years. So it's really going to grow. In other words, you'll get around about a 50% or 40% growth from that segment. So you need to re-look at your investment strategies again, and say, is it time to move up into that area? I mean if you want evidence that you really should do this, look at Unilever. They achieved enormous growth in sales. But their profits, their international profits went down 29% since 2012. Their foreign sales. Procter and Gamble, 23%. They didn't make profit. They made sales, not profit. It was vanity versus sanity. But now that the opportunity is moving into 20 to 50, it's a whole new opportunity. And actually, it's quite good for me to just digress slightly here to look at those two companies, well, particularly P&G. And again, I'm not privy to any confidential data on my part. I mean, they're clients, but I don't hear inside stories. Look at P&G. 10 years ago they were selling toilet cleaners, benchtop cleaners, washing up fluid. You know, stuff that's basically easily copied, easily manufactured, and actually difficult to distribute. It's a big cost in distributing fluids. So they weren't actually great areas. P&G 10 years ago started getting out of all those categories and moved more and more into categories where there's higher margins. That's nutraceuticals, pharmaceuticals, wellness. You look at their product line and-- and obviously, cosmetics. New SK2. Look at how their product line has evolved over the last 10 years. That's an example of a company that understands the changing age profile of the population, the changing tastes of the population, and the changing economics of the population. So it's really quite a smart move. Another good one to keep in mind, it's China based but it actually doesn't work worldwide is Coca Cola. Coca Cola got into China really early. By around about sort of 2000, 2005 they've started making no profit at all from Cola. The reason was anybody who would open up a bottling plant in China opened one up in China, produced Cola, and controlled the pricing. But the Coca Cola pays for the trucks. And what they did is they got into Bonavita, and they got into packaged teas. Now, Mrs. Ho, who's 50 years of age and now getting concerned about her health, and nutrition, et cetera, she doesn't buy sugar drink. She buys chrysanthemum tea, or a mineral re-inforced drink, or something like that. The margins on that are enormous. Cost not 2P to make a tetra pack of tea. So you know, the margins are great. And that's, again, the case of a company understanding how its product line has to evolve with the changing nature of the consumer. So Coca Cola is beautifully positioned for the aged Chinese consumer. And that's really the picture I want to get across. OK. Now, the other problem that I find in dealing with people in the investment sector is you, for quite good reasons, and I'm not criticizing, you focus on yield, because obviously you want to produce yield. However, do just sometimes stop and think about, where is the money? I put it up to you earlier, , but here it is again. These three bars on the right hand chart there are the change in the top three bars on this chart here. So the gray, the yellow, and the blue at the top. Now, the right hand one puts on 157 million extra people in the next 10 years. So it's 157 million people with a household income over 100,000 US dollars. They will account for 39% of the global growth in household incomes. So while the yield or the growth rate will be quite low, as the proportion of the total amount of folding money to be spent out there, they are really very significant. So you do want to sort of keep in mind where the money is. And it's important. Now, just run your eye down that line. As you can see, the top three, which is Western Europe, and North America, and affluent Asia account for just over a third of it. South America is quite important at 13 million. And look at China at 56 million. Now, the beauty of the China data, again, it it's located largely in 28 cities along the eastern seaboard. Don't even bother with central or Western China. It's all in the eastern seaboard. And 28 cities account for 3/4 of them. Move back one income group, 50 to 100k. China dominates. And then the, 20 to 50k, China is really important. And as you can see, India becomes important then at $81 million. So the world is, again, changing quite a lot. There's huge growth. But whether you like it or not, China's going to be really important in the growth of consumer spending. And the old world, and I use the old world in the sense of age, is also going to continue to be very important in terms of where the money is. And if you can find profitable opportunities take advantage of it now. I am going to wrap up with two things. Sorry about this. I know, you know, it's 20 minutes to getting that first gin and tonic. But you just hang in there, all right? This will help you pay for it, ultimately. I'm doing South America. What I'm going to do here you actually can do for pretty much any country in the world. But I thought, let's do South America as an example. And I know this is not necessarily the easiest chart in the world. But you're all experts in finance. So you'll understand numbers. And you'll understand tables nicely, provided I explained them well. The left hand two boxes is the number of people, in millions, falling in to each of those age, income segments. So for example, the top left box you can see has got 25. There's 25 million people in Brazil and Chile who are null to 14 years of age living in a household with an income of one to 10,000 US dollars, OK? And the box below is our projected distribution of the population by age and income in 10 years time. Now, the shift from left to right is really pretty reliable, because all we're doing is putting people older one year at a time for 10 years. So that's pretty well reliable. The only box that's not is the left hand one, because 2/3 of them are not alive yet. But everywhere else is alive. A little bit of a quibble about up and down. But as I said, we're generally conservative. The red boxes are the biggest numbers. The green numbers are the smallest numbers. So it sort of looks as if all the biggest numbers are actually growing in the 25 through to 64 age group in the bottom box there. You see it goes from the 40 to 64, for 20,000 to 50,000, goes from 11 to 17 million. And that's what the right hand box shows for you. It shows you the change. So you look at this 40 to 64. It's 6 million based on 11 million. So in those two countries, that 40 to 64 age group earning 20,000 to 50,000 US dollars is going to grow by approximately 50% the number of people. And it's almost certain to happen. And if you run down that column little bit more you'll see that the other two income groups grow roughly in that same magnitude. Look to the left. Look at, for example, null to 14, 50,000 to 125,000. It grows by 1 million people on a base of 4 million. That's 25% growth compared to 50% growth. If you lower the income level to 10 to 20 the number of null to 14-year-olds actually shrinks. So if you're investing in a kid's product aimed for low income households the simple truth is you're targeting a declining market. And these sort of markets, this 6 million extra people in that 40 to 64, 20,000 to 50,000, are really attractive for a huge range of products. Remember how I was talking about the change in lifestyle? The change and experiences? These are the people who start going on holidays. These are the people that are going to buy better quality things, because that's part of the experience. You will find that the clothing market globally is going to slow. It's going to keep growing. But it's going to slow. And it's going to change. I can give you an example in the European context. If someone can translate it for here, that would be great. But there's a brand called Primark in England, which basically sells female clothing really cheaply. Like 10 pound dresses sort of thing. And girls by them, wear them once, and chuck them out. And they certainly don't appeal to my wife who is over 40, and she'll shoot me for telling you that. No, we've been married 40 years so it's OK. But the point is it appeals to the younger segment. But the real growth segment now is brands which are like Hobbs, and L.K. Bennett which aims for the 45-year-old woman, and better quality. So people are shifting from quantity to quality. And from volume to a few really good things. The other theme we're picking up, because we analyze expenditure data in detail, is enoughness. It's very new trend. But people are starting to say, I've got enough shirts. Or, I've got enough this and that. It's starting to hit the car industry. People are realizing their car doesn't need to be turned over every year, because it actually will last five years or six years. So why change it every year? Status is disappearing. Status is disappearing for other reasons, as well, which is important to appreciate in this context. You know, the glitzy brands, they're having a real problem because people are realizing that the big buyers, such as, [INAUDIBLE], which I'm sure you've heard of. One of the biggest clothing chains in the UK. Because they buy so much they can buy as good as, if not better quality cloth. They can dictate better quality stitching and better design than these small boutique, high profile brands. They spend the money on advertising. So you're getting a shift away from glitzy brands into quality, again. So I think in this area, I mean Brooks Brothers, I think people would have heard of that, that's probably going to do quite nicely out of the shift, because my perception of them is they're more quality rather than quantity. I could be wrong. But that's the message I want to get across. Now, you're getting that shift in South America dramatically. The next slide is for the younger parts of South America. It's almost exactly the same story. It's a movement to the older affluent buying more carefully. But buying a whole new range of products. And your problem is actually to find the investible opportunities, because a lot of them are new companies. Name, for me, a restaurant chain that has the same coverage and brand presence as either Kentucky Fried, or McDonald's, that appeals to a 55-year-old, educated couple going out for dinner. There's lots of restaurants that target for that, individuals, but there's not a lot of big chains. Pat's, Ruth, Crystal, something might be there. I don't know if that's even investible. But you know, there's not a lot of opportunities yet there. It's going to happen though. And that's where the opportunities are for you, because we're looking at segments that are going to grow at 50%, whether you like it or not, in the next 10 years. It's going to take a catastrophic change in the economies for this not to happen. But overall, if you look at the whole chart it really doesn't grow very much at all. If you look, it's 205 million in 2016 goes to 222 million. Not a big lift. But those little pockets give you huge lift. And that's what you need to find. OK. That's the rest of South America. And you'll look at it in your pleasure. OK. Just to wrap up then, to give you an idea of where I feel is a good example of how things will change is the health sector. Health spend globally is going to go up. It's going to go up for two reasons. First of all, there are more older people. And I digress slightly. One of my subsidiaries is Global Demographic Healthcare. We monitor all the data of 101 chronic conditions across the world. So we know how many people have in emphysema, lung cancer, diabetes, et cetera. One piece of advice to you. Don't turn 40. OK? It's bad news after that. I've been fighting it for years. OK. But the point is, the world is turning 40. And so the demand for health services is actually really going go through the roof. And even on the traditional health spend category it grew at 3%. It'll grow 2% for the next 10 years, on the traditional one. So this is the first example of where you need to shift your mind. Don't think doctors, nurses, hospitals and pharmaceuticals. Start thinking 3D printing for hip replacements. Start thinking, the new types of prosthetic arms, et cetera. Start thinking, gyms. Then think of, here's a really unlikely one, a Japanese company making gears for bicycles, because you know, that company is making an absolute fortune in sales at the moment, because cycling has taken off across the world. Why has cycling taken off across the world? Not because of kids, but because of people my age. So that whole, you know, if you like, the infrastructure between wellness, keeping fit, and things, is actually a huge growth area. So this figure actually understates it. So that's really the first important message to get. Then the second area is this whole area of nutrition and nutraceuticals. Again, people are not price sensitive. They get over 40. They start to be worried about what they eat and the quality of things. So again, it's a high growth area and not price sensitive. And then thirdly, in terms of-- I think I've got it on here. Yep. Government versus private in the health sector. The problem, perhaps in the past in investing in the health sector was you were either confined to the pharmaceuticals or a relatively small number of private health providers. But that's changing dramatically now. Health tourism is a major industry. So don't think, you know, that it can only be private hospitals in the United States or wherever else. Private hospitals in Thailand, in India, pretty much most of the areas of the world, and here, I mean, understand I'm instantly informed, you're getting the most up to date information here, ladies and gentlemen. But private hospitals placed in locations where the cost of the labor is not so high actually becomes a great opportunity. And look at private spend. Private spend is the orange bar on that right hand chart. It's actually really huge. And it just keeps growing over the next 10 years. However, do notice that it's in those areas of the world where the money is most available. And they're 40 plus with a lot of money to spend. OK. Now I've used up all my time. To conclude, key points, age change is inevitable, birth rates are going down, life expectancy is going up. So basically, you'll get much better yields from consumer products that are aimed at 40 plus and under. I know there's pockets and all of that. But as a general rule, 40 plus will probably give you more bang for your bucks than any other age group. So leverage it. Affluence is increasing. It's going to increase, because the economy's growing. But it's also changing. The old affluent is also becoming an important player. So don't write off that 65 plus. It's actually quite an important segment. It's going to keep having incomes coming in. Middle class is now redefined as 20,000 plus, and above, which is good news. It means those big companies can achieve sales and profit. And that's actually quite important. And the problems the world, the biggest problem, as I see from all of this analysis, is this just sheer supply of people who are going to be looking to be able to provide for themselves by working who can't find jobs. That, you know, I don't have an answer to. But you should be aware it's there. You should be aware that the ability of a country to educate its population is going to differentiate it from a disaster and a success. So the education profile of a country is really important. That's why I emphasize India last year for the first time is now educating every five to 12-year-old. That's great. But do you realize it's a minimum of 15 years before that starts to have any significant impact on the productivity of the labor force? So it's there. But it's not there. You want to be looking for countries that are there now in a real sense. So that's the thing you've got to watch out for. So I will stop there now. You can wake up. You're now 10 minutes from a gin and tonic, depending on the number of questions you've asked, of course, so it's totally your fault. So I'll stop there and we'll take questions. OK. [APPLAUSE] Thank you. MARIA DEL PILAR AMADOR: Thank you very much for this incredible presentation. We have several questions from our audience. I'll start with this one. Please share with us your thoughts on the implications of these demographic trends in the sustainability of pension funds. CLINT LAURENT: Sustainability of pension funds? MARIA DEL PILAR AMADOR: Yes. CLINT LAURENT: Well, I basically see it as good news, frankly. Do appreciate the pension industry at the moment is still biggest in those oldest countries. That's Western Europe, North America, and affluent Asia. I know it's growing in all the other areas of the world, obviously, but the really big pension pools are there. And to some extent, the pressure is coming off them. So they will be largely sustainable. And obviously, also, the governments in a lot of these countries realize that you have to control the pension settlements that are being-- you know, the old, final salary pensions, and things like that, in a lot of parts of the world are actually disappearing. They're no longer available. So I would say it doesn't mean they're going to have no problems. I think they will. But I think the problems might be less because people are working longer. In fact, one of the reasons why people are working longer is pension and security. MARIA DEL PILAR AMADOR: Thank you. CLINT LAURENT: That answer it for the person? OK. MARIA DEL PILAR AMADOR: How big is our problem if you take your analysis of aging to life insurance companies? CLINT LAURENT: Yeah, that's actually a hard one for me to answer, because at a simplistic level I'd say, well, you've delayed the problem. They're living longer. So life insurance, yeah, I can't really answer that. I'm not skilled enough to be able to answer it. I'm sorry on that one. No. MARIA DEL PILAR AMADOR: So we'll move on to the next one. CLINT LAURENT: My apologies. Yeah. MARIA DEL PILAR AMADOR: About opportunity in China for the group to 40 to 64. For the Latin commodities, talking about soybeans, proteins, it's something that it's going to benefit Latin America, or this is more important for younger cohorts? CLINT LAURENT: Oh no, it's going to benefit anybody in the world who uses their initiative. You've got a new consumer group emerging, growing by 100 million in the next 10 years. And they are actually, shall we say, change addicts. Remember, these people have gone through a huge lifestyle change. So you're used to change. They want to change. They want to try new things. They're educated. So they've got media in front of them, etc. So they see different lifestyles, etc. So they're almost junkies now, in terms of, I want what's new, et cetera. Now, I'm not trying to be rude or anything like that. I'm just trying to make the point. I think that if I owned a business in South America, it doesn't matter actually where you own the business, and you want to find new business opportunities, you buy yourself an air ticket to somewhere in China, and spend a week there walking around the streets and the markets, looking at the people, sitting in a coffee shop, watching what's happened. And you start to get a feel of the sort of products and services that people are consuming, and see the type of restaurants that are there. I think, you know, food is clearly important. And South America does have a benefit of being seen as southern hemisphere, which is associated with a healthier physical environment. So you actually have some health dimensions. You're competing with Australia and New Zealand on that. But it's the same sort of position there. And obviously you have a great reputation in terms of beef, et cetera. So I think food is an obvious one. But tourism is an obvious one. I don't really get the sense that South America has picked up on the Chinese tourism trend at this point. Now, it partly could be a function of the Chinese government issuing visas. So it's an issue. But there is a huge number of people now who can afford to get on a plane for eight hours and see another country. I mean, Australia, is just cleaning up on this. You know, I was down in Australia a couple of months ago. You've heard of the Blue Mountains near Sydney. And the lookout, which you used to be able to walk out to on your own on any day and you'd be the only person there, had 16 tour buses at 2 o'clock in the afternoon there. All from mainland China. So the whole tour industry is a mess of one. And I can't see why you wouldn't be successful in that. Then, as these gentleman over there pointed out to me, health sector. Affluent Chinese are actually stuck, in terms of access to good health care. It's not that there isn't good health care. There are some very good hospitals. But there's so many people who can now afford this now demand far outstrips supply. And the government hospitals are not necessarily good enough for these people at this income level. So look at that. I mean, China has a health time bomb coming through. You've probably read about the pollution. The emphysema rates, which is basically lung cancer, various forms of lung cancer, are going through the roof. In terms of diabetes, there's 21 million people now. Our models indicate 50 million in 10 years time. And that's because of a rapid change in diet. They don't put on weight, which is generally a good indicator of potential diabetes. So they don't pick it up until too late. So there's a whole range of chronic conditions that for the next 10 years are going to come through and overweigh the system. It'll get better after that because nutrition and health consciousness comes in and it brings it back down. So for 10 years it's a huge opportunity. So if you can leverage that, either supplying into that market, or getting that market to come to you, don't miss it, would be my advice, in terms of that. So yeah, it's just really a question of initiative. In terms of China, finding investible opportunities targeted at that particular age group is quite hard at the moment. They tend to be quite small caps and highly diversified across China. So they're a bit hard for you to find as a diversifications. So it might be better to find a company in your own country who is doing the right thing in this respect and that might be an easier investment opportunity to get to. Slightly longer answer there. Sorry about that. MARIA DEL PILAR AMADOR: What does aging population and the lack of growth in the middle class mean for income inequality? CLINT LAURENT: Very simple. Inequality grows. But don't be too upset about that. I'm a statistician by background, OK? If you have any distribution that has a defined zero, i.e., no income, and the average is increasing, by definition the variance is increasing, and therefore the inequality is increasing. That's just a simple fact. What you want to do is look at what's happening. And there's actually some quite good news. Yeah, inequality's increasing because the tail is going up that way. But the size of the tail at the bottom end in most countries is actually going down, even in India. The number of people on incomes below 1,000 US dollars per year has almost halved in the last five years. So that's actually good news. So inequality is growing. But I look at the number of people who are really poor and that-- well, member one of the slides. Actually, I can find it. I'll go back to it very quickly to make the point, because it's quite important. This chart, look what happened to the blue bar at the bottom. That's households with an income under 10,000. It's dropped dramatically. That's actually good news for the world. So yeah, inequality's growing. But it's actually not something to worry about too much. MARIA DEL PILAR AMADOR: And how does life expectancy play in your demographic analysis? Are more people old and unproductive, or how does this-- CLINT LAURENT: Yes, OK. Life expectancy is actually really important. It's sort of a statistic that everyone sort of knew but ignored. They didn't appreciate the implications of it. And to put it really bluntly, if you have been educated to, let's say, at least upper secondary, if not got a bachelor degree, and you are now turning 60, and the life expectancy is 88, then your perception of the world is actually very different from what it was 20 years ago in the same scenario. When you turned 60 you would get lucky if you made it to 70. 60 To 88 is 28 years. Now, you might at the moment say, oh, that's all right. And That means I've got 28 years to play golf. Well, actually I'll tell you what. That's not really that appealing after the first month. You know, it actually isn't a lot of fun. Oh, got to go out and play golf with Joe again today. And I've only got another 27 seven years, six months, and four days to go. And you don't want that. And I really stress the point of education. Educated people, frankly, don't want to sit on their butt and do nothing for 28 years. So they get out. So they're productive. And also, because 28 years, I'll come back to my point of pension and security. So they might change their job. In fact, a very high proportion do change their job. It either changes in hours, responsibility, [INAUDIBLE] it's things like that. They change their job. But they keep an income stream. It keeps their social stream. You think of yourself, how much of your social life is work related? If you left your company today and moved out of town, how many friends would you have left at the end of the year from your present friend set? And it actually declines quite dramatically. So by staying in work people maintain their social circle, as well, their social lives. So that's actually quite important as well. So the life expectancy is basically getting people to think, "Well, I'll stay back and work." I'll keep earning money. I'll keep my social life. And it helps the economy, because of all the other issues that I was talking about. So it gives you, shall we say, a vibrant old population, rather than a doddery old population. MARIA DEL PILAR AMADOR: Thank you. Cost of living is going down. Does it affect age groups like millennials? CLINT LAURENT: Who said the cost of living is going down? That's a difficult one to answer. I think if the cost of living is going down, I'm not totally convinced on that argument, but if it is going down, I think it affects everybody proportionately in various ways. It really depends on what's getting cheaper. I actually suspect you will find the cost of living is going up. The reason I say that, and I actually read it this morning, and I thoroughly recommend it to you to read, the latest Economist, which talks about the global firm, it's got a picture of a container ship that has containers on it, disappearing off into the distance. It points out that a lot of the, shall we say, global trade, hasn't generated either the profits, or the lower costs that people thought it would-- well, the profits, and therefore more and more businesses now not going to be global. And remember earlier I was talking about Unilever, and P&G? Their foreign earnings just weren't performing. And the local manufacturer can actually do better, in many respects. So you're going to get local manufacturers. And that could be good or bad. One has to accept if you make an iPhone in China it's probably going to be cheaper than if you make it in the United States. But if you make I don't know, let me choose a simple product, shampoo in Mexico, I would bet you a Mexican manufacturer will do it cheaper than a multinational. So on one hand, it could make things cheaper. On the other hand, it might make things a little bit more expensive. Could go either way. So you're in a little bit of a turkey shoot out there, at the moment, folks. I won't go into it, because as you appreciate [INAUDIBLE] political shifts, they're going to have implications. And they will have implications on trade and pricing. And I'm not an expert on that. MARIA DEL PILAR AMADOR: Our last question regards the disproportionate number of males versus females in China. And they're asking you to please discuss, and just give your thoughts and implications on that. CLINT LAURENT: OK it's a good question, actually. At the present moment, you know, there's actually, in terms of marrying age, which we define for China, at the moment, as 25 to 34. It used to be younger, obviously, below 25, there's virtually no imbalance. And the number of males of marrying age and number of females at marrying age is just about equal. It's not quite. It's biased to male, but marginal. But in 10 years time there will be 12 million males in the marrying age who cannot get married, even if in our computer model, which is very moral, will only let them marry a female 18 years and about. So we've got 12 million males left over after they've married every failed female 34 down to 18. In 20 years time that number is 34 million. Now 34 million in the context of 1.4 billion is not that significant. But 34 million in terms of marrying age population is significant. And it means there's a large number of males who will not be able to form a family, be part of society in the traditional sense. And whenever you have a surplus of males anywhere in the world you have an increase in sexual crime. So it doesn't look good. There is no short term fix for it. Nowhere else in the world is there a surplus of females of marrying age in that same time period. So it's not a case that, you know, there's a surplus stock, and, hey, girls, have we got a deal for you! Got a husband for you, or vice versa. There is no supply that way. So yeah, it's going to happen. It is a social risk for China. What they do about it? I don't know. They're doing a couple of short term fixes. As you know they won some big contracts in Africa, like to build a railway or something. These contracts are China supplies the labor as well. So the labor force, all male, goes out there, builds the railway line, and then they give them a load of cash, and told to stay there. And so basically become citizens of the country where the rail line was built. But that's really on the margin. It's not going to have a big impact on it. So whereas I talked about the shortage of jobs for uneducated people, this is the other big social elephant in the room that's going to come through. And the problem will decline in the median term. As you probably read, about two years ago they basically have relaxed the one child policy, such that every couple can now have two children, whether they're urban hukou, or rural hukou-- that's their birth certificate-- they can all now have two children. Before if they had a rural hukou and the first child was a girl, they could have a second child, which you could bet your bottom dollar was going to be a male. And that's why you got that bias coming in. But that's now all gone. And so it's now one or two. Now, the really interesting thing here is the initial year, it's only got one year observation. They've got to be careful. The initial year data indicates the male female bias has gone back to what is sort of nature's natural, which is about 51%, 49%. But whereas we all thought that everybody who could have a second child, and was in sort of the cycle to do so, we thought 80% would have a second child. You know, it's 60%. It's way below what everyone expected. In other words, China has made what we call The Singapore Leap. They've gone from wanting multiple children to one child is enough in one generation. Singapore, as you know, has a real problem of getting birth rates up. And it looks like China is actually going to have a significant drop in those birth rates. So this year it's got about a 5 million increase. So it was a great time to buy Nestle. But because a declining number of women of working age, plus the slower take up on the extra birth rates, it means it comes back down to around about 12 or 11 million in five years time. And then goes below this year's level thereafter, so the birth rate. And this is another big psychological shift in the world. Appreciate a number of countries now no longer think increasing population is good. China thinks flat or decline. Japan thinks decline is just wonderful. Western Europe's coming around to the view that a declining population is better. We actually don't need more poor people. It's better to have a stable population and influence. A big psychological shift occurring there as well. OK. MARIA DEL PILAR AMADOR: Well, thank you very much for this interesting presentation and all your insights. I'm sure our audience here and around the world have wonderful takeaways back home. For our audience here, please join us for a networking reception and dinner at The Laguna Terrace. Please be sure to take all your belongings as the room is going to be cleared this night. Night sessions will begin tomorrow, 9:00 [INAUDIBLE]. Thank you very much. CLINT LAURENT: Thank you. [APPLAUSE]