How do we invest in a rebalancing world? And what does it mean for investors?
One way to look at this is to study history. Just after World War II the US comprised a third of the world’s economy and half of its production. Surpluses were mammoth, but since we were coming out of the depression, free trade wasn’t exactly popular. So we led a restructuring effort and gradually brought down barriers. The result was volatile markets, but two decades of unprecedented growth. Is this possible again?
Sure it is. The recent recession has actually begun the global rebalancing process. Before the crisis China had 1/8th of its economy dependent upon exports to the US. They know that those days are behind us, as evidenced by their appreciation of the Yuan. The key to Chinese growth going forward is social infrastructure—putting health care and retirement systems in place so Chinese consumers feel free to unlock their savings and overcome the paradox of thrift.
Does that mean we should go out and buy the Chinese Proctor and Gamble? Maybe. But it also means that health care providers and tech firms could be strategic. But be careful! Investing in developing markets is risky, with gut-wrenching volatility in the society, economy, and stock market. But if you can stand the heat, that kitchen should be a pretty good place to be.
Douglas R. Tengdin, CFA
Chief Investment Officer
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