Korean Demographics
‘Capital market revitalisation’ and ‘Value-up’ have caught the headlines in South Korea thus far this year. In governance terms, the country remains firmly rooted in the bottom half for a variety of reasons, of which dreadful profitability metrics and chronically low dividend payout ratios are just two. Last December, the Asian Corporate Governance Association and CLSA Limited released their 11th biennial CG Watch report on corporate governance (CG) and ESG performance for 12 markets in the Asian region. Korea ranks 8th.
We are following developments closely, however, the phrase ‘a leopard never changes its spots’ comes to mind.
However, in other news, a subject close to our heart: demographics. South Korea again set a fresh record for the world’s lowest fertility rate in 2023. The number of babies expected per woman in a lifetime fell to 0.72 last year from 0.78 in 2022, according to South Korea’s National Statistics Office. The number of births in 2023 fell by 7.7% to 230,000, also a new low.
In 2022, marriages also fell to a new low. While some 192,500 couples married, this was a staggering 42% lower than a decade earlier according to Statistics Korea. It gets worse, South Korea has the smallest share of parents taking maternity leave in the developed world according to a Korea National Assembly Research Service study.
Whatever the rules and the laws, this latter point does not reflect well on employers, i.e., corporate culture. Another Statistics Korea study last year forecast that the population would fall to 36.2 million over the next 50 years, a 30% decline from the current 51 million.
To be fair, the government has passed measures to address these demographic challenges. This includes tripling the monthly allowances for parents of newborns and a reduction of mortgage interest rates. The government also plans to ease regulations on hiring foreign nannies to boost the current limited options available for childcare.
Unfortunately, the cake is baked. Per capita income and the level of urbanisation have proved to be the only statistics that correlate negatively to fertility rates, i.e. getting richer and living in an increasingly urban environment, as the South Koreans have done over the past 50 years, means lowers fertility rates.
South Korea is not alone. According to Our World in Data, the global average total fertility rate has more than halved since 1950, falling from around 5 to around 2.3 children per woman in 2023. Sub-Saharan Africa still has relatively high fertility rates, but other regions like East Asia and Europe have seen more drastic declines.
As investors, we like to think we are long term. It is easy to point out obvious losers (consumption), much harder to point out likely winners. Companies that have a history of growing in both good and bad times would be a good place to start.
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