Emerging Markets At A Glance

With the US economy expected to drop to third place, behind China and India, with almost virtual certainty, by 2050, emerging markets, especially those that have a positive trade balance with the US, not just BRICs, will play an increasingly important role, especially now that the US trade deficit has become extremely politicized. Attached is a useful snapshot of the key emerging market trends, particularly in the context of waning economic powerhouses such as the US and Japan. As the authors observe: "The overriding common interest of China, India, Russia and the developed world is to find  technological and political solutions to the challenges of energy security, climate change and the rebalancing of global demand. But free trade and free capital flows did not in fact survive the replacement of the UK by the USA as the world’s leading economic power, and this directly contributed to the Great Depression and huge undershoot in global equity returns of the 1930s. History warns that this could happen again, despite a strong common interest in “mutually assured prosperity.” However, this is just another way of saying that it is macro factors rather than micro ones that are most germane to the valuation debate. When people assert that the market is overvalued, they are really expressing their skepticism about the future of US productivity growth and/or the future of globalization. Logically enough, the reverse is also true: if you believe in the potential benefits of accelerating technological change and the dramatic rise of the emerging world, then the next decade for US equities is likely to be a bright one."

Full report:

Comments

[ZeroPower]

if you believe in the potential benefits of accelerating technological change and the dramatic rise of the emerging world, then the next decade for US equities is likely to be a bright one

Definitely believe in technological change being a key driver in productivity and efficiency gains, but probably not in the American part of the world, and moreso the emerging markets part. Hence, higher returns elsewhere.

-Is the iPad an American marvel manufactured in China, or is it a Chinese marvel "designed in California"?

[lewy14]

What is necessary, and what is sufficient?

America is necessary. Without America, who would design the Chinese marvels? (How much design is indiginous to China, and how much do they copy?)

Without China, production would be in Maylasia, or South Korea, or Singapore, or Japan, or, god forbid, reaching even farther back into the sands of time, in America.

America is necessary and sufficient. China is neither.

[DoChenRollingBearing]

It is almost never a bad idea to have a little bit of money in economies that are growing and have good future prospects.

But as I know and have invested in Peru I'll just keep my (overseas) money there.  If I had to pick a BRIC, I would go with Brazil.  Their stuff (trucks, beer, settlers in the Amazon, etc.) is everywhere in Peru.

[dark pools of soros]

and that little thing called the Olympics..  first in Latin America i believe

[Comrade de Chaos]

The real question that has to be answered prior to making any exiting and fearful assumptions, is the GDP growth linear? If not, can you really regress the future based merely on the last two decades of growth?

I don't know whichever will be the largest economy by the size in 2050, neither do they. 

[Stevm30]

"With the US economy expected to drop to third place, behind China and India, with almost virtual certainty, by 2050"

says who?

[No More Bubbles]

Drivel.  No one even knows what will happen in Q3 of 2010.  How can anyone credibly talk about 2050?

[bc0203]

America is definitely in decline, but it might take longer than one would think for them to drop to third place, simply because no one is ready yet to take over the lead spot.

• China is building out a great infrastructure, but they've got a HUGE asset bubble to work themselves out of and bit of empire building to do to be able to project their power out beyond their borders effectively. (They're working on building a navy for instance, but they haven't even floated their first aircraft carrier.) 
• India has huge infrastructure problems, a large portion of it's population lives in poverty, and it can't even provide adequate food or electricity to all of its residents consistently.

Other countries have their own issues holding them back, but the idea is similar.  It takes a while to build an empire.

The big issue, as I see it, is what happens when the next wave of economic crises hit around the globe: not just asset bubbles and the resulting banking crises, but major sovereign defaults, currency "issues", etc.   How well each country can weather those storms will determine how they can position themselves over the next few decades.

I too like Brazil, because they've already weathered  the storm and are pretty well positioned this time around.  Of the BRICs they are the making the most "right moves" economically, though one has to hand to it Russia, as they sure got political "game."  

[AnAnonymous]

Selling a rosy future... As good as selling a darky future.

[carbonmutant]

Moore's Law

[if]

A book written in 1688 by a Spaniard living in Amsterdam (appropriately entitled Confusion de Confusiones) describes the amazingly diverse tactics used by investors. Even though only one stock was traded – the Dutch East India Company – they had bulls, bears, panics, bubbles and other features of modern exchanges.

Funny how our measures of wealth change but the symptoms of human nature remain the same.

[DavidC]

Which, I guess, is why Japan has languished over the last 20 years...hmmm...

DavidC

[clymer]

"Climate Change"?

[mark456]

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