Daily Commentary

MarketMinder’s View: This fact-packed article about Japan’s -3.09 million population drop between 2020 and 2025 doesn’t make any economic or market claims. But it does show a long-running fear about economics and markets—demographic decline—coming true. A -3.09 million person drop in five years is Japan’s biggest decline on record, amounting to -2.5% and over triple the population drops in the prior two five-year periods. And while the household count rose, “This is believed to be due to an increase in the number of single and elderly people living alone. The average number of people per household fell to a record low of 2.15.” This will all have implications for redistricting, which will unfold later this year alongside a parliamentary debate over reducing seat count. But do you know what we don’t see implications for? Japan’s economy or markets. Japanese GDP grew 6.7% in this stretch and 2.0% since 2019, to account for 2020 being a COVID-depressed base (per FactSet). Japanese stocks rose just fine, with their underperformance tied more to the US’s Tech boom and overall domestic sector makeup than inherent weakness. Businesses are adapting with automation and efficiency gains.

MarketMinder’s View: Focusing on problems is what humans, policymakers—and headlines—do. So we remind you MarketMinder is politically agnostic, preferring no politician nor any party and assessing policies for their market implications only. Keep in mind, too, that while this article discusses some sociological challenges of an aging population, markets don’t deal with sociology. They focus on the economic and political factors affecting corporate profits and sentiment toward them. So our primary concern with this piece is the economic claims, chiefly that an aging population will strain the social safety net, requiring “rising public debt, cuts to benefits, or tax increases,” all of which are implied to be problematic. But for investors, look at demographic challenges from a market and global perspective, and a wealth of history shows population growth (or lack thereof) is generally irrelevant to stocks. Consider Japan, the developed market with the highest old-age dependency ratio at over 50% (50 elderly dependents for every 100 workers, per the OECD). Yet Japan’s economic expansion continues, its stocks have climbed over 150% during 10 years through yesterday’s close (per FactSet, MSCI Japan in USD) and its bond yields remain among the developed markets’ lowest. If demographics were destiny, Japan should be in a tailspin—it isn’t. Why is that? For one, Japanese companies are globally competitive—and multinational. They can go where the growth is and draw on talent and resources wherever they are. A global company’s revenue and profits don’t depend on any one country’s demographic profile, even the one it is based in. Then, too, as the article shows, population growth may be slowing, but folks are also living longer—and the services-oriented jobs an increasing amount of them do are conducive to longer careers. Demographic reality is better than portrayed. Moreover, these are long-running trends that aren’t catching markets by surprise. And if markets—and the people and businesses that make them—are anything, they are adaptable, continually learning and solving problems in front of them, including demographic ones. Demographics move too glacially to move markets.

MarketMinder’s View: Some politics here, so we remind you MarketMinder is politically agnostic, preferring no party or politician and bringing you this piece for the personal finance implications only. In last year’s Budget, UK Chancellor of the Exchequer Rachel Reeves cut the annual contribution limit for tax-free cash savings accounts (cash Individual Savings Accounts, aka cash Isas) from £20,000 to £12,000. The goal: Incentivizing people to put more funds in stocks and shares Isas, boosting Brits’ investment and long-term compound returns. We found it an overall sensible move helping people mitigate the risk of having too much cash and not enough growth to fund retirement. But six months on, the change still hasn’t become official, and the Treasury is having some trouble with the finer points. It turns out people’s psychological affinity with cash is hard to break, and there was chatter that folks could still load up on cash by maxing out their stocks and shares Isa contributions but deploying the funds in money market accounts. To prevent this, the Treasury planned a 22% tax on interest accrued in stocks and shares Isas—a tax, to be clear, we don’t think officials actually wanted to collect. It was a nudge. All seemed on track until the same outlet uncovered some Treasury leaks last week that revealed the rules were written in a way allowing people to dodge the tax if they had just 1% of their stocks and shares Isa actually invested in stocks, allowing the remainder to park in cash tax-free. So now the Treasury is going back to the drawing board. To our British friends waiting for tax clarity, stay tuned, for it seems the uncertainty will last a while longer. Frustrating, but clarity will come. And for everyone, this is a timely (and timeless) reminder that tax changes often aren’t as simple as the initial announcements suggest, and whether you love or loathe them, reacting before you get all the details may not be wise. It may prove unnecessary or counterproductive.