|Title:||Global gross domestic product growth by selected country/geographic region in percentages for the period from 2000 to 2012|
Start of full article - but without data
What Asia Grow
Much of the global economy's future growth
shold come from Asia
GDP Growth 2000-2012
(Asia = XX%)
Latin America X%
Middle East/Africa X%
Other Asia XX%
Note: Table made from pie chart.
When it comes to global economic growth, economists, analysts and other experts are focused on what is happening in the emerging markets of Asia, Latin America and other regions, which have generally weathered the past few years of the global financial crisis quite well. It's time that investors do the same, they add.
"Emerging economies will take over as the new driver for global growth," says Jason Hsu, CIO of Newport Beach, Calif-based Research Affiliates and a professor of finance at UCLA. "'There will be significant transition and adjustment costs," he adds, during a talk at the annual conference of the Investment Adviser Association held in late April in San Francisco.
Still, emerging countries maintain low ratios of debt relative to gross domestic product and tend to maintain trade surpluses. "They act as suppliers of global capital to the debt-laden developed nations," notes Hsu.
Overall, the world's emerging markets accounted for about XX% of global GDP growth in XXX.X. Yet, many U.S. investors allocate less than X% of their portfolios to these regions. "That means they are under-exposed to a major growth facto " the professor shares.
Growth in China will begin to shift, according to Hsu, as the Chinese lose interest in maintaining a trade surplus and devoting so much labor to low-wage industries that fuel the export of basic goods.
"What will happen? At some point, the Chinese will cash in and demand U.S. production," lie explained. "That's their future view down the road."
Big shifts are already happening, according to Robert Horrocks, CIO for Matthews International. China's yearly growth has hit XX%, and about X-X% has come from exports arid the industries supporting them, says Horrocks, who also made a presentation during the recent IAA meeting.
"Exports allowed them to commercialize," says Horrocks, "... and the Chinese cut their teeth making shoes for Nike, and hoses for Walmart, etc." Now, most growth in Asia is domestically driven. "But we don't see that in the U.S.," he acids.
These trends are happening not just in China but in other emerging countries, as well. "I believe the emerging-economies' currency basket will strengthen vs. the dollar and compete to become a global-reserve currency,", explains Usu. "And emerging consumers will continue to consume what's made their developed-market counterparts."
Specifically, he explains, emerging currencies are likely to be revaluated upward, which means that some export sectors will "disappear." Over time, these countries will create healthy domestic-consumption-based economies. "And servicing emerging-market consumption will be profitable," argues Hsu.
Will this shift in the emerging markets support the developed-economies' multinational corporations (MNCs)? "Absolutely. which is another positive." he shares, noting that this is a trend we're already seeing as U.S. brands gain more market share in many developing nations. "They will be the ones to participate in emerging-market growth and funnel value back to the U.S. economy," H.su notes.
As a result, he encourages U.S.-based MNCs to increase their foreign direct investment and to see these new global growth patterns more as opportunities than as threats.
While Hsu focuses his arguments for globalizing portfolios on longer-term issues, there are plenty of analysts that point to short-term trends. And, of course, lots of experts argue that investors should focus less on timing and more on broader trends when building portfolios in any market conditions.
For David Goerz, chief investment officer of Highmark Capital Management, global equities are currently compelling, "relative to historic valuations and compared to other investment alternatives, including cash, bonds and cornmodities." His firm remains overweight in global equities. with a preference for U.S. and emerging-market regions over Europe and Japan, he says.
"Emerging-market growth is more cyclical now, but secular drivers of urbanization, industrialization, emerging culture of credit, and insatiable consumption still persist," the CIO explains in a recent market update for Righmark Capital.
According to research conducted by Celent, a Boston-based financial research and consulting firm, investment in foreign equities by U.S. investors has been growing at more than XX% in recent years and reached $X.X trillion in 2010, XX% of total equity holdings. Higher returns and diversification are the main factors driving international investment.
Global/international mutual funds account for the biggest share at XX% of total foreign equity holdings in 2010. Investment in ADRs has been growing in recent years, reaching $XXX billion in XXX.X and accounting for XX%. of total foreign equity holdings, Celent analyst Arin Ray explains in the report "American Depositary Receipt: Market Trends and Regulation."
Overall, foreign equity investments grew at a X% compound annual growth rate, or CAGR, during 2004-2010. Investments in ADRs grew at a XX% GACR during the same period. Global ETF assets grew most rapidly both before the crisis (2004-2007) and after the crisis was over (2008-2010); this was due to the growing popularity of Ell's since the first half of the last decade, and also because of their low base (new products have high-growth potential).
American Depositary Receipts are different From the other instruments in certain ways and have often produced returns superior to domestic equities, making them a popular choice for investors, according to Celent's research. ADRs are used by non-U.S. firms to raise capital in the United States, allowing U.S. investors to invest in countries that may restrict foreign participation in the domestic markets. In terms of capital raised, Brazil, China, and Russia dominate the market.
In 2010, trading volume in ADRs was XXX billion shares, and trading value was SX.X trillion. Trading in ADRs accounts for about XX%, by both value and volume, of overall trading on the NYSE and NASDAQ.
International investing has been gaining popularity for quite some time now, Ceient's ADR report explains: "Investors in pursuit of superior returns, especially from emerging economies, are always on the lookout for attractive opportunities in foreign markets. There is also evidence to suggest that investing in foreign equities reduces portfolio risk for U.S. investors."
While many U.S. investors expand their international holdings by buying shares of U.S.-based multinationals with strong overseas revenues, it's important to consider purchasing shares of non-U.S. MNCs as well, Honocks argues. "I understand that [U.S.-based] MNCs are safe, familiar and generally well-managed," he says. "But you are missing out by investing overseas [only] this way."
For instance, there are appliance-makers in China that have higher market share both in that country and globally than some of their U.S. counterparts. And, when it comes to staples, such as packaged noodles, Asian-based companies know "that's the business to be in," Horrocks explains. For U.S.-based MNCs, it can be tough to compete in such home-grown overseas markets, though Singapore-based MNCs are making significant breakthroughs with some products throughout Asia, he points out.
Given the complexity and rapid pace of change in the region, "I like to say that we [at Matthews International] invest in Asia and not on Asia," concludes Horrocks, "and that's all we do." That strategy is receiving more and more attention, especially in light of current economic conditions in other parts of the world.
Speaking recently at the Asian Development Bank's (ADE) annual meeting, economist Jeffrey Sachs said that global growth now depends more on Asia than on the United States and Europe. Going forward, he explains, "Asia will need to find outlets for growth that are different from rapid-export growth ... and I think there is ample opportunity for that."
Asian nations won't need to depend solely on consumption-led growth, he says, though China could certainly create more consumer-led growth given its rapid rise in incomes and savings.
"It also means investment-led growth, especially building infra-structure, fighting pollution, making cities more resilient to climate change--taking steps in other words to ensure long-term quality of life in Asia through public and private investments in core infrastructures, such as housing, roads, power, information technologies, climate resilience, pollution control and so forth," Sachs says.
"We know that there are trillions of dollars of investments that need to be made throughout Asia," he adds. "They will provide an engine of growth and high returns for Asia. And Asia saves enough to support that investment without having to rely on external financing."
Asian countries also must update their growth models to accommodate the "new normal"--prolonged restructuring in advanced economies--and surmount obstacles to sustained and equitable growth in developing Asia, according to a recent ADB report, entitled "How Can Asia Respond to Global Economic, Crisis and Transformation."
ADB experts say that Asia can weather a renewed financial crisis and weakened export demand from developed markets. But its long-term prosperity hinges on relying more on domestic and regional markets, as well as expanding ties with Latin America and Africa, the report explains.
The bank's report urges policymakers to keep monetary policy flexible with respect to extreme exchange-rate volatility and to use fiscal stimulus to support domestic demand if needed: "The greatest challenge for policymakers is to Manage these near-term issues while maintaining Asia's successful, ongoing economic transformation as a global growth engine," it concludes. The same can certainly be said of other regions, like Latin America.
What Asia Grow
Much of the global economy's future growth
shold come from Asia