Global Themes 2007
Globalisation causing urbanisation of China, India, and the oil
rich nations (Dubai etc)
China plans to urbanise 400 million people over the next 10 years.
China currently builds a city the size of Brisbane every month.
In 2006 China was building 35 new airports, and 23 associated aviation
China currently builds 40,000 kms of roads and bridges every year.(for
example China plans to build a further 50 bridges over each of it’s
main two rivers over the next 10 years).
China uses 48% of the world’s supply of cement, and 34% of the
world’s steel supply. It also uses massive amounts of Copper(22%),
Aluminum, Nickel , Zinc and now Oil, Gas, Coal and Uranium.
China opens one new coal powered power station every week.
Urbanisation driven by higher wages in the cities for factory, manufacturing
and building construction work.
Massive infrastructure projects to improve their terrible road and
rail systems. An example being Leighton Construction recently winning
multimillion dollar contracts.
Urbinasition towards the big cities to work in IT or call centres.
A US1 Trillion dollar construction boom feed by the profits from oil.
In Kuwait they are currently building a 1km high tower in “Silk
City” , amidst a new $US 150 billion city.
The IMF forecasts the oil states to rack up a current account surplus
in 2006 of
US $480b (3x that of China)
On the London Metals Exchange (LME) most metals are at or near historic
low levels, typically with less than 4 weeks supply and in some
cases (Nickel) less that 3 days global supply.
Invest in resources especially those that are essential to the building or energy
industry.(nb : Be careful to avoid carbon emitting fuels such as coal and to
a lesser degree oil that will become costly due to the carbon credit system or
may eventually be replaced by cleaner renewable fuels)
Remember the first phase of urbanisation is when building and resources boom
, the next phase is when the service companies boom. So if you want to get in
on the resources don’t wait another 5 years as you may be too late.
Currently the big diversified global miners are in my opinion very undervalued
trading on PEs of 10 or less, due to fears of a commodity price collapse that
will not occur whilst China and India continue to urbanise. Like all commodities
we can expect to see fluctuations, and at time sharp corrections, but the trend
over the next 5 to 10 years will most certainly be up.
Invest in emerging countries (BRIC –Brazil, Russia, India, China) , who
are benefiting from world globalization and urbanisation.
Global Money Imbalance
USA owes 70% of the world’s debt, or it takes them 6% of the GDP just to
meet the interest payments on their debt.
Australia and New Zealand have interest payments on their debts at 6% and 8%
respectively. Not good , but at least the debt is not as large in dollars terms
as the USA.
Japan has the largest foreign reserves ,followed by a lot of the oil
nations ,and then off course the rapidly catching up China(currently
the 5th largest
surplus country in the world )
Avoid holding assets in $US, as the currency could easily collapse.
Hold Japanese Yen or Chinese Yuan or even Euro.
A strong benefit of investing unhedged in Asian shares should be an
appreciation of your asset value due to currency appreciation.
- The world currently has 6.5 billion people.
By 2050 it will be approximately 9.1 billion people, that’s
a massive increase in just 43 years.
- USA, Europe, Japan, Australia has aging populations.
- Asia, South America, and Africa have young populations.
Japan’s population is declining.
Invest in countries with growing, young populations, as
this helps an economy to grow.
See urbanization theme. Invest in companies
Be very cautious when investing in a country
of declining population (eg : Japan)
Environmental Changes – Global Warming,
Pollution and Water Shortages
See Al Gore’s movie “An Inconvenient Truth”. THIS
IS A TRUE PROBLEM.
- 2007 World Economic Forum in Davos highlighted the need to take action
immediately, and in particular to rapidly reduce green house gases typically
car emissions (oil), coal fired power stations that produce
electricity , any burning of carbon based fossil fuels.
If we don’t heed
the above warnings we face :
Melting of the Antarctic and Artic ice caps which will lead to further heating
of the planet , massive sea level rises (over 6 metres) ,and massive flood of
the world’s low lying areas displacing millions of people
from there home and causing the world maps to be rewritten.
- Additionally we would see increasingly severe storms (eg: Cyclone Katrina)
as well as droughts in other areas.
- Not to mention the massive heat haze, smog pollutions , that will steadily
kill millions from breathing in too much carbon dioxide. Just breathing in Mumbai
India is equivalent to smoking 2.5 cigarettes per day.
- Australia is currently experiencing a one in a thousand year drought.
- In Beijing they typically have one severe dust storm every 30 years,
in 2006 they had 12 .
- In Mumbai in 2005, they had 37 inches of rain in one day killing thousands
- The 10 hottest years on record occurred in the last 14 years, causing
- Number one is that we accept that global warming, pollution and drought
are major world problems that do exist, and will, if unchecked get a lot worse.
- 2007 should finally see heightened awareness on these issues and politicians
campaigning to address these problems, leading to steady change.
- Invest cautiously in fossil fuel companies such as coal and oil companies.
They will still make money, but will find increasing cost pressures by governments
penalizing there emissions, and alternative fuels becoming more
Invest in renewable energy companies – Solar ,Wind , Biofuels,
Geothermal, Hydro , but remember they will be long term investments
that will take time to
become technologically efficient and widely used. But make no
mistake, they will be the future of energy for the world , which
can be a highly profitable industry
(just look at the US $40 billion Exon Mobil makes per year).
There is already an Australian company planning to build a solar
power station in Victoria which
will power 445,000 homes.
Cleaner fuels and energy will do well – Natural Gas, Nuclear
Power (arguably the most powerful and efficient energy of all, but
what about the waste ? )
- Invest in companies that produce hydrogen or electric (Toyota) cars.
Hydrogen fuel stations are currently being developed in USA, Germany, Canada,
Spain, Britain, Belgium, Singapore, Japan, and Iceland.
- Invest in food and water producing companies.
- Invest in companies or countries (eg : Amazon region) that own a lot
of water or trees as they will become increasingly valuable for food and drinking
as eco tourism.
- Invest in companies that can make rain by shooting silver iodide crystals
into the air as they do in China.
- Invest in companies that make money from construction or running of mass
transport systems such as rail and other infrastructure.
- Internet to continue to become mainstream use for banking,
shopping, research, travel etc
TV on your phone, TV on your computer , cheaper flat screen TVs
Robotics to continue to develop in Japan
More people to work from home , and choose to live in lifestyle locations
Voice Over Internet Protocol(VOIP) to erode telecoms profits.
Hi tech countries like Japan, Taiwan and Korea to continue
to do well.
Interest Rates & World Growth
- USA at 5.25% - Not likely to change much
- Australia at 6.25% - Not likely to change much
- Europe at around 2.5% - Should rise to catch up with USA and Australia
- Japan at around 0.25% - Should rise
- Avoid countries where rates are rising rapidly
If inflation (commodity prices don’t explode) expect only Japan
and Europe to rise, and a fairly benign year for interest rates.
- China, India and Vietnam to lead Asian growth.
- USA growth to be muted due to a slow and overvalued housing market.
World growth close to it’s average at around 4.5% , provided
no nasty surprises.
Terrorism and War in Iraq
Hopefully both resolve and we have a peaceful
year. If we get further severe terrorism or wars then expect
If you invest in fair or undervalued markets your
investment will recover after a negative sentiment
It is always wise to
have some funds
in cash or
fixed interest that can be used to buy in when
markets are cheap.
It is recommended that you work with your adviser
to discuss these issues and how they may affect your investment performance.
As always High Net Worth Financial Advising recommends investing
in only fair or undervalued asset classes, where there is a strong
likelihood that the above themes may enhance investment returns.
Possible 2008 Themes
The Emerging middle class of China and Asia ready
Solar power to save the world
Parts of South America
and Africa begin to emerge
NB : The content of this newsletter does not constitute personal
advice and is general in nature ,please see your adviser for
suitable to your own needs and objectives.