Saturday, June 12, 2010

Investment Winds Blowing East

Debt troubles continue to plague Europe and it seems to be only a matter of time before global investors begin asking the leadership here in the United States the same questions that they are asking European leaders about their debt levels.

But half a world away, Asian economies have rarely looked in better shape and look like a great place for your investment dollars.

Asian states have rather different problems than Europe's nations...awash with cash and thundering along at a rapid pace.

Asian economies are, if anything, in danger of overheating. Asian leaders are worried about too much foreign investment capital coming into their country. This is in sharp contrast to Europe and the US where the problem is having capital leaving the country too quickly.

Yet most US investors are missing this shift in the global economy. Wall Street still tends to think of Asia as being closely hitched to the United States' shopping cart...but that is no longer true.

Much of the demand from the United States and Europe vanished overnight when credit markets froze at the end of 2008. Yet Asian economies barely drew breath before resuming their ascent.

Asia, ex-Japan, is likely to grow by 7.5 to 8 per cent this year...A year ago that would have seemed impossible.

Singapore will grow at more than 6 per cent this year, Malaysia will find at least 5.5 per cent in growth, even battered Thailand will grow by 5 per cent.

How has Asia done so well? One word – China.

Chinese Imports and Consumption

Despite the BS and the rhetoric from the United States, China – the world's biggest exporter – has emerged as a significant consumer.

Overall, China's import volumes are a fifth higher than its pre-financial crisis peak. Many Asian countries have more than doubled their exports to China since the depths of the recession in late 2008 and early 2009.

Exports from neighboring Taiwan are up more than 160 per cent from the bottom, while Singapore has boosted its exports to China by more than 120 per cent and South Korea by nearly 100 per cent.

In absolute terms, nearly 30 per cent of Taiwan's exports, accounting for 15 per cent of its GDP, go to the mainland. A quarter of South Korea's exports, accounting for 10 per cent of its GDP, go to China.

For both of these countries, and others in Asia as well, China is more than twice as important as the United States in terms of exports.

Most American investors would probably to surprised to learn that last year, Chinese consumers bought more cars and mobile phones than did Americans.

The increase in Chinese and Asian consumption is a long-term shift. It is driven by a surge in sustainable and self-generating domestic demand on the back of economic growth. In fact, consumption has played the major role in Asia's economic recovery.

The effect is most dramatic in China where domestic demand increased by $180 billion in 2009. The consumption picture is similar in the rest of Asia. Excluding Japan, consumption in Asia is more than 7 per cent above September 2008 levels.

Shifting Trade Winds

Rapidly rising incomes in China are making its consumers look more and more like those in the developed world. Today investors need to keep in mind that just as the US consumer is key for Chinese exporters, so too is the Chinese consumer key as an export destination for the rest of Asia and the emerging world.

Just as once at the end of many global supply chains there was the American shopper dropping items into a shopping cart, now there is the Chinese consumer doing the same...or the Chinese government planning a new road or steel plant.

Trade patterns globally have begun to shift as China and Asia become both wealthier and seek alternative patterns of continued economic growth.

Commodity-producing economies – Brazil, Russia, Indonesia, Australia and Canada – and commodity-consuming countries such as China, South Korea and Japan are reinforcing each other. South Korea, for example, sells 70 per cent of its finished goods to emerging markets.

China is sucking in all sorts of commodities. That gives suppliers of those commodities more money to buy manufactured goods, many made in China itself.

Of course, China is not yet nearly big enough to carry the world on its shoulders. But it is big enough to carry parts of it. And it is those parts of the world where investors need to and must put at least some of their investment dollars.


  1. I have about 35% of my investments in Asia and they are performing very well. Asia, specifically China, Singapore, Hong Kong, are the best places to invest.

    I still have no idea why people put their money into the U.S., I presume it's for patriotic reasons. I can't fathom any other reason. Except, maybe they want to lose their money.

    "China is not yet nearly big enough to carry the world on its shoulders. But it is big enough to carry parts of it." I have to disagree, which is something I rarely do on this website, China has 1.5 billion people and has a better monetary setup, import-export and less debt then the other investment countries.

    The U.S. indeed can't carry the world on its shoulders because it never did in the first place. The U.S. just invests in war, IOUs and disgusting fast foods.

    This is what people in the U.S. worry about. People in China, or Asia for that matter, worry about this.

  2. Jonathan,
    About China "carrying" the world - I pretty much agree with your point. I do believe that, at most in a few years, China and other emerging markets will be able to carry the world and be the biggest factors driving the global economy.

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