When the history books are written, they will show that we are living in the midst of great change in geopolitics and world trade… The shift of wealth and power from North America and Western Europe to new, emerging powers continues apace… and there’s no slowdown in sight. Powerful new alliances are forming… including a critical one between China and Russia. It’s no coincidence that in November 2012, China’s newly appointed president, Xi Jinping, made sure his first foreign visit was to Russia to meet Vladimir Putin.
Quarterly Strategy Report
The first time I realized something was wrong was in February 2007… That’s when banking giant HSBC issued a profit warning. It projected a loss of a couple of billion dollars in its US mortgage-lending business. I wondered how HSBC could take a multibillion-dollar loss in the US when it was only a bit player there. Something was fishy… No one knew how massive the subprime mortgage meltdown would become in early 2007. But HSBC’s admission was a sign of trouble ahead. HSBC survived relatively unscathed… but a long list of household names in the banking sector weren’t so lucky.
There has been a lot of focus of late on China’s slowing economy… trouble in its real estate sector… and its flagging stock market.
But there’s a much bigger story brewing in China. Liberalization of investment flows in and out of the country is about to trigger a sea change in the global economy – one that has dramatic implications for investors. To learn more, I sat down with our chief strategist, Rob Marstrand, to discuss his research into the big changes on the horizon for China… and the rest of the world.
As I wrote about recently in the Daily Market Briefing, emerging-market stocks are showing signs of life. Since its February 2014 low, the iShares MSCI Emerging Markets ETF (NYSE:EEM) has rebounded strongly over the past three months, rising 8.4% at this writing. Does this represent a significant shift in investor sentiment about the prospects of emerging-market stocks? Or is this just a short-term blip higher in volatile emerging markets? To gain some perspective, I sat down with Rob to discuss his latest emerging-markets research. He reveals the key catalysts that will drive emerging-market performance in the coming years.
Human beings have the same basic needs: food, water, clothing, shelter. But our similarities go beyond that… We also have similar desires. We all strive for more comfortable and fuller lives… whatever form that takes. For someone in the West, that might mean having the latest smartphone, wearing designer clothing or driving a luxury automobile. For someone in Bangladesh, it may be a bicycle to get to work… a refrigerator to keep food fresh… or a radio to listen to. It’s easy for citizens of the developed world to forget that many of the things we take for granted remain out of reach for billions of people.
We’ve largely avoided recommending you invest in the US because, like many developed countries, it has two major structural problems: large levels of government, corporate and personal debt and a slow-growing population relative to many parts of the emerging world. These factors are long-term drags on economic growth. So revenue growth is likely to be weak for most companies that rely on the US and other developed countries for their sales. But we need to balance this view with our core principle of always being diversified. Which is what this month’s report is all about.