Global Themes 2008
1) US Recession and Global Credit Crisis
The likelihood of a US recession is currently quoted at around
If this occurs, chances are we will already have felt the worst effects
by the time we realize it has occurred as two consecutive quarters
of negative growth indicating a recession would be announced some
time after the fact.
The US currently accounts for around 20% of world
GDP based on purchasing price parity(ppp) or 28% of world GDP
based on USD. However both
China and India are contributing more in terms of growth of world
it is possible we will see the Emerging Economies not severely
effected by a US recession. China exports to US account for only
exports and a US recession is thought to slow Chinese GDP from
around 12% pa to 9-10%; with India expected to be less effected.
because both China and India have huge and rising internal demand
due to the
rising wealth of the middle class (see below).
Keep some money in cash or safe fixed interest, at least 20% of
your portfolio but ideally 40%.
Avoid US equities
Purchase equities in countries that will be relatively
unaffected by the US slowdown – eg
: Saudi Arabia, India, China
Don’t over borrow, fix in interest rates
to reduce risks.
2) Globalisation causing urbanisation
the oil rich nations (Dubai etc)
and Emerging Market countries
(as per 2007 theme)
2008 GDP forecast (IMF) at 10%pa
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
and between 2008 and 2010 China plans to build a further 40 new airports.
China currently builds 40,000 kms of roads and bridges
every year.(for example China plans to build a further 50 bridges over
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 two new coal powered power stations every week.
Urbanisation driven by higher wages in the cities for factory, manufacturing
and building construction work.
In China a mobile phone is sold every 3 seconds, China Mobile adds
over 5 million
new customers every month.
2008 GDP forecast (IMF) at 8.4%pa
Massive infrastructure projects to improve their terrible road and
rail systems. An example being Leighton Construction recently winning
India plans to spend USD 500 billion on infrastructure over the next
Urbanisation towards the big cities to work in IT or call centres.
Hero Honda in India builds a new motor bike every 18 seconds.
55% of the population is under 24 years old.
A US1 Trillion dollar construction boom feed by the profits from
In Kuwait they are currently building a 1km high tower
in “Silk City”,
amidst a new $US 150 billion city.
25% of the world’s cranes are currently situated
on the strip between Dubai and Abu Dhabi.
The IMF forecasts the oil states to continue to rack up a current
account surpluses in excess of US $500b pa. They will spend alot
of this building
Emerging Markets (Asia, South America, Eastern Europe)
2008 GDP forecast (IMF) for Asia is 4.9%pa, South America 4.5%, Eastern
The UN estimates that the urban population of the emerging markets
countries will grow at about the size of San Francisco per month
for the next 25
Emerging markets represent 80% of the worlds population,75%
of the land
mass,66% of foreign exchange reserves and 50% of world GDP ; yet
account for only 7% of
the MSCI global sharemarket capitalization.
By 2025 Emerging Markets are expected to account for two-thirds of
(based on ppp).
On the London Metals Exchange (LME) most metals are still at quite
low levels, typically with less than 26 weeks supply. In particular
levels are very
low, while Uranium demand is set to increase dramatically.
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 undervalued
trading on PEs of 14 or less as the world still does not
realize the magnitude of the
two most populous nations (36% of world population) urbanizing
at once. 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
Invest in emerging countries (BRIC –Brazil, Russia,
India, China),Saudi Arabia, who are benefiting from world globalization
Invest in Emerging Markets Infrastructure Funds
3) Interest Rates & World Growth
USA at 4.25% - Not likely to change much, may reduce if US heads
Australia at 6.75% - Not likely to change much, may slightly increase
due to inflation pressures, or decrease if world growth slows dramatically.
Europe at 4.0% - Not likely to change much, may gradually catch
up with USA and Australia
Japan at 0.50% - Should slowly rise, probably intentionally lag
World growth is forecast to slow slightly in 2008
to around 4.8% (IMF forecast) whilst inflation pressures remain
due to China and
relentless demand for commodities, not to mention food and wage
increases emerging globally.
Avoid countries where rates are rising rapidly or are very high
(Turkey 15.75%, Brazil 11.25%, South Africa 11%).
China (Olympics in August), India, Saudi Arabia, and South America
to lead growth.
USA growth to be around 1.9% (IMF forecast) or less (recession?)
due to a slow and deflating housing market.
Invest in high growth regions of the world that are fairly or
undervalued and with political stability.
4) Environmental Changes – Global Response
2007 World Economic Forum in Bali highlighted the need to take
action immediately, and in particular to rapidly reduce green house
produced from car emissions (oil), coal fired power stations that
produce electricity, any burning of carbon based fossil fuels.
20% reduction in Greenhouse gases by 2020 Target hopefully to be
ratified in 2008 or at least 20% of all energy from renewables by
China to take a stronger role in moving the world to emission targets.
USA to hopefully ratify Kyoto after Bush leaves the White House.
Carbon Trading Schemes to become more mainstream.
Currently 441 Global Nuclear Power Plants, 27 under construction,
with a further 80 in planning across the globe.
Massive increase in spend on Renewable Energy sector – Wind
Energy is the most cost effective (UK to get 50% of their power generation
Wind power by 2020- mostly offshore wind farms). Saudi Arabia
to build a trial solar powered city in the next decade.
Invest a small amount of your portfolio in renewable energy- Wind,
Solar, Hydro, Geothermal, Tidal.
Invest in some Uranium companies.
Invest in companies that produce electric or hydrogen cars
Invest in food and water producing companies.
Invest in companies that make money from construction or running
of mass transport systems such as rail and other infrastructure.
Be cautious with companies that produce coal or other dirty fuels.
5) Population Demographics
The world currently has 6.5 billion people.
By 2050 it will be approximately 9.1 billion people,
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.
India has 50% of it’s population under age
25 years old, they will lead world growth in one to two decades
from now as China
an ageing population.
Invest in countries with growing, young populations, as this helps
an economy to grow. See urbanization theme.
Invest in companies
that provide aged care.
Be very cautious when investing in a country
of declining population (eg : Japan)
6) 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
Australia and New Zealand have interest payments on their debts
at 6% and 8% respectively. Not good, but at least the debt is not
in dollars terms as the USA.
China now has a staggering $US 1.5 Trillion of foreign reserves
growing at around $US 250b pa.
Japan has the second largest foreign reserves, followed by a lot
of the oil nations.
The Oil Nations surplices are growing at around $US 450b pa
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.
Internet(broadband) to continue to become mainstream use for banking,
shopping, research, travel etc
TV on your phone, TV on your computer, cheaper flat screen TVs
Youtube, FaceBook, MySpace to continue to gain popularity especially
as social networking sites.
More interactive games such as Nintentendo WII
Robotics to continue to develop in Japan
More people to work from home, and choose to live in lifestyle
Voice Over Internet Protocol (VOIP) to erode telecoms profits.
8) Global Conflicts
2008 should see a gradual withdrawal of troops from Iraq with
Australia and UK leading the way.
North Korea appears to be showing interest
in joining the West.
Potential 2008 hot spots could be Iran, Pakistan,
If you invest in fair or undervalued markets your investment will
recover after a negative sentiment event.
It is always wise
to have some funds
in cash or fixed interest that can be used to buy in
when markets are cheap.
Finally, 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 2009 Themes
The Emerging middle class of China and Asia continue
Renewable Energy to save the world
Parts of South America
and Africa begin to emerge
China’s post Olympic slowdown
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.