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J.P. Morgan Global Long-Term Strategy: Labor Age Population Decline Impact

Report Focus

• Analysts: Alexander Wise (J.P. Morgan Global Long-Term Strategy) & Jan Loeys.
• Date: 16 January 2025.
• Subject: Analysis on declining global working-age populations (DM/EM) and its investment implications.

Core Concepts Summarized

Labor Population Decline in Developed Markets (DM)

• DM working-age population peaked at 746 million in 2023 and is projected to decline by over 100 million by 2100, driven by falling birth rates and aging.
• China: By 2100, its working-age population will shrink by ~70% (compared to US peak levels of 2024).
• US: Still experiencing population growth due to immigration but lacks demographic "shoulder" like Europe (e.g., Germany) and East Asia.

Drivers of Labor Decline

1. Falling Fertility/Rates: Most DM countries below replacement level since the 1970s.
2. Ageing Boomer Generation: Large cohorts now exiting the working-age population.
3. Immigration: Inefficient at countering demographic headwinds due to feeble competitiveness and resistance from policies.

Economic and Financial Implications

1. Slower GDP Growth: Below productivity growth rate due to shrinking workforce and weak innovation.
2. Higher Interest Rates & Lower Equity Returns: Capital supply reduces, pushing up bond & equity yields.
3. Sector Shift: Emphasis on Anglosphere countries (US, UK, Canada, Australia, Ireland) due to favorable demographics/immigration stats.

Country Narratives

• Anglosphere vs. Rest of DM: Anglosphere expected to grow, while European and East Asian countries face sharp labor decline.
• Specific Countries: Germany → +9% depopulation; US ongoing growth due to immigration factors.

Asset Allocation & Invesment Themes

• Equities: Overweight Anglosphere ex-US; reduced position on China due to demographics and climate re’us.
• Bonds: Focus on private credit and securitized debt over central govt bonds; include high-yield US corporate bonds ~30bps spread over Treasuries.
• Sectors: Maintain Value overweight due to lower-beta behavior and strong correlation with rising yields. AI & Health care suggest niche overweights.

Risk Factors

• Climate Change vulnerability (esp. India) → undervalued not priced in.
• Geopolitical & monetary policy uncertainty; challenges in predicting future productivity enhancements.

Strategic Conclusion

• SAA (Strategic Asset Allocation): Basic 60/40 equity bonds, tilted toward Anglosphere ex-US, lower demographic countries, mixed credit/debt. Maintain long-term valuation sensitivity.

Disclaimer: This report provides investment recommendations only for "professional" or institutional investors within specified jurisdictions; excludes retail investors. No guarantees of performance or outcomes issued.