Global Themes 2011
1) Euro Debt Crisis and GFC recovery
The likelihood of a second Global recession
is currently quoted at around 20-25%.
The US is slowly recovering with GDP hovering around 2.5% pa growth,
and Europe 1.5%pa growth. Both weak, but at least slowly improving
we hope. China and India are doing well at 10.5% and 9.5%pa growth
respectively. They have huge and rising internal demand due to the
rising wealth of the middle class (see below).
Iceland’s currency collapsed and so might the Euro, or at least
the strong countries of Europe such as Germany and France may wish
to leave the Euro as they are being pulled down by having to give
debt bailouts to the Southern European countries such as Greece and
Italy. Soon it may include Ireland and England.
US debt is also a huge concern at about 14.5 trillion US dollars,
and interest payments alone requiring a massive 14-15% of US GDP.
2) Globalisation causing urbanisation of China, India,
the oil rich nations
and Emerging Market countries
(as per 2007 and 2008
China plans to urbanize 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
The Civil Aviation Administration of China (CAAC) said it was planning
to build 97 airports across China by the year 2020.
Chinese airlines are expected to double their fleet over the next
Chinese domestic airlines will fly 210 million passengers this
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 its
main two rivers over the next 10 years.
China is building massive high speed rail where trains can travel
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.
Urbanization is driven by higher wages in the cities for factory,
manufacturing and building construction work.
1.2 billion people, with a middle class of 300
million growing rapidly.
54% of the population is under 25 years old.
The second fastest growing economy in the World at 8.5% pa only just
behind China and predicted to overtake China soon as the world’s
fastest growing economy.
USD 277 billion in foreign surplus reserves as of September 2009.
India’s domestic consumption as a percentage of GDP is the highest
in the Asia Pacific region at 57% of GDP.
44.5 million new mobile phone subscribers during the first quarter
of 2009 at the height of the GFC.
The Indian economy is driven mostly by domestic consumption and hence
its economy was barely affected by the GFC.
Booming IT sector, the number one call centre of the World.
Booming but not well known manufacturing sector with global companies
such as Samsung, Hyundai, Suzuki, Panasonic, LG and Nokia all setting
up huge factories in India.
Booming Steel and Resources industry headed up by Tata Group. A Global
Tata Group’s Tata Motor now sells the world’s cheapest car
the Tata Nano for USD 2,000.
The Indian Government is currently planning to spend USD 350 billion
(YES billion) to upgrade and improve the countries poor infrastructure
(roads, bridges, ports and railways).
By 2016 India is expected to be the world’s seventh largest car producer
By 2025 the Indian middle class population is expected to increase
10 fold with a 3 fold increase in household income.
Currently 361 shopping centers under construction
Massive growth in the aviation, power and tourism industries where
they cannot meet consumer demand
“Bollywood” now a global force in movies after several global
hits such as Slumdog Millionaire
Massive infrastructure projects to improve their terrible road and
Urbanization towards the big cities to work in IT or call centers.
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 forecasted the oil states to rack up a current account
surplus in 2006 of US $480b (3x that of China)
Other regions that are doing well and emerging include South East
Asia, South America, Eastern Europe and Africa.
Make sure you don’t miss the emerging markets boom.
Emerging Markets (Asia, South America, Eastern Europe)
2011 GDP forecast (IMF) for Asia is about 5.5%pa,
South America 4.5%, Eastern Europe 5.6%.
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 years.
Emerging markets represent 80% of the world’s 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 world GDP (based on ppp).
3) Interest Rates & World Growth
USA at 0.25% - Likely to start to increase
if recovery continues.
Australia at 4.75% - May increase a bit more due to the strength
of the resources boom.
Europe at 1.0% - May gradually rise with recovery.
Japan at 0.10% - Should slowly rise, probably intentionally lag
World growth is forecast to grow in 2011 at around 3.5% (IMF forecast)
whilst inflation pressures may build due to China and India’s
relentless demand for commodities, not to mention food, and wage
and currency increases in emerging markets.
4) Environmental Changes – Global Response
The 2007 World Economic Forum in Bali highlighted
the need to take action immediately, and in particular to rapidly
reduce green house gases typically 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, and 20% of all energy
from renewable by 2020 Target, not yet ratified..
China to take a stronger role in moving the world to emission targets.
World moving to electric or hydrogen powered cars
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 from 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.
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.
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, that’s
a massive increase in just 40 years.
There are 90 million new people in the world each year. Of course
most of these are in the developing countries. Net increase (after
deaths) of about 65 million per year.
Asia, South America, and Africa have young populations.
USA, Europe, UK, Japan, and Australia have aging populations.
Japan, Russia, Italy and Spain’s populations are declining.
In the above chart you can see that the growth in the
number of people joining the work force in Australia starts to decline
around 2006. And by 2010 has dropped quite significantly but it is
still a positive. This is suggestive that (excluding immigration) there
will be less demand for property and shares than there was previously
and is generally weak for the economy, but still mildly positive. That
is a slowdown in the growth of potential new consumers.
In Japan, we see the population working turns negative
in 1994. This is a very bad demographic that coincided with terrible
property and share performances in the 1990s and 2000s as you would
expect reading this graph. Japan has one of the worst demographics
in the world.
Japan has the opposite demographics to most of the booming emerging
economies such as India, Philippines, and Indonesia. It has a declining
This is bad for business. Less people equal less business. Property
prices and share prices have all been going down for two decades now.
Japan is only being saved by its great car companies at present.
In USA, we see the demographics are not good either with
the decline starting around 2005, and a significant weakness in growth
from 2010 to 2025, and then the Latino effect to improve things after
Baby boomers in USA, Europe, UK, Japan, Canada and Australia are starting
to retire. This is a major demographic group with a lot of money. Investments
that will do well from this demographic should be travel and tourism,
retirement services in health and finance, and unit developers as they
downsize from the family home. Of course this may lead to an excess
of family homes on the market. Excess supply will push prices down,
as has just happened in the USA and UK.
In summary the past 30 years has seen rapidly declining birth rates
in the developed western countries compared to high birth rates in
the Emerging countries. Hence the differences in the various charts
and one of the reasons I like investments in the Emerging markets.
In China, the demographics are not good also. Luckily
for now, in China there are still about 20-40 million Chinese moving
from the country to the city each year. But beware once this urbanisation
stops, as the one child policy has ruined Chinese demographics.
After the fall of communism the Chinese began to rapidly urbanize their
population of 1.3 billion people. This meant about 40 million people
per year would move from the country to the city to get better paid
work, typically in a factory or construction job. With 40 million new
people in cities each year that causes a severe excess in demand and
undersupply of housing and land.
So not surprisingly property prices in major Chinese cities have gone
up tenfold in the past twenty years.
But as stated above, be a bit careful once the urbanization finishes
in China, as China has an ageing population which is not good for share
markets or property prices.
In India, demographics are peaking now but still reasonable
to about 2025. Also they have a rapid urbanisation similar to China.
Here are a few facts to see why India is booming.
* 1.1 billion people, with a 300 million middle class growing rapidly.
* 54% of the population is under 25 years old.
* The second fastest growing economy in the World at 8.5% pa only just
behind China. India is predicted to overtake China soon as the world’s
fastest growing economy.
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 14.5% of the GDP just to meet the interest payments
on their debt.
Australia has interest payments on its debts of
5% of GDP. Not good, but at least the debt is not as large in dollars
China now has a staggering $US 2 Trillion of foreign
reserves growing at around $US 250b pa.
The Oil Nations surplices
are growing at around $US 450b pa
Avoid holding assets in $US, as the currency
Hold Chinese Yuan.
A strong benefit of investing unhedged in Asian shares should be
an appreciation of your asset value due to currency appreciation.
advances and New Trends
Internet now reaches one third of all Chinese
and growing very rapidly
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.
Unlimited Txt messaging packages
Stem Cells—To repair the body tissues, such as damaged nerves,
skin, bones, cartilage or blood vessels.
Online Shopping – Buy goods and services via the internet
with huge discounts, delivered to your door.
It is already being done by EBay, Amazon and many others. This
is, and will be, huge!
Environment – Perhaps the most important new trend this decade
is looking after the environment. Again companies and countries
that lead the way in cleaning up and preventing pollution will
Plastics made from Corn or other organic materials
Alternative energy to grow rapidly – Wind, Solar , Hydro
and Geo-thermal etc
Electric cars are about to take over from petrol cars. Nissan Motors
say they will have a fully electric car by 2010, and able to be
sold globally by 2012.
It will have a range of 160km, and can
be charged at home via a plug in power
in 6 hours,
or in 30
minutes using a
plug in ‘rapid
charge’. It will use the latest technology lithium-ion batteries,
located like pavers under a car's floor.
Whilst this may take some years to unfold globally, I am sure you
would be wiser to invest in a car company that makes electric cars
rather than petrol cars. Think twice about purchasing a petrol
car, it may soon be obsolete.
8) Global Conflicts
2011 should see a total withdrawal of troops from
Iraq. North Korea is looking very dangerous and a Korean conflict
is likely. Trade and currency tensions exist between US and China.
Potential 2011 hot spots could also be Iran, Pakistan,
9) Global Population and GDP projections
Projections – An in depth look at Global
Populations and Growth
Country Population rankings up to 2050 (thousands)
India is projected to be the most populous country
on the planet by 2050 hitting a massive population of 1.572 trillion
people. Closely followed by China with daylight third. India and
China will make up about 1/3 of the global population of about 9.3
billion people. When you view the tables above and below you begin
to realize why the BRIC and Next (N) 11 Emerging countries will become
very important in the Global economy—led by India and China.
Projections – Country GDP rankings up
to 2050 (billions of USD)
* European Union GDP, is shown for comparison, but not ranked.
Interestingly, but not surprisingly when you look at
population growth, India is expected to be the largest improver,
going from a GDP of a mere 469 billion USD in 2010 to a massive 27,803
billion USD by 2050. Again it reminds us of how important demographics
So by 2050 we should expect to have four economic superpowers- China,
Europe, USA and India. The others will have fallen away to become
10) The Resources and Soft Commodities Boom
The Resources Boom
When you look at the graph below you begin to release
why the Resources boom is only just beginning. As a population gets
to the $5,000 per capita pa income level and up to about $15,000,
the consumption of key resources (especially Copper – see green
line in graph below) increases exponentially. At first an individual
can buy a bike, then a motor bike, then a car. Drive the car on a
freeway/bridge or take the train to work. They also rent a unit,
buy white goods, and buy a house. All of these things require increasing
amounts of resources. Iron Ore and Coal are required to make steel.
Aluminium for cars and windows, Copper for plumbing etc.
Looking at the massive number of people in the world
just entering this $5,000-$15,000 (“middle class”) per
capita pa income band, such as the Chinese (population 1.3 billion
people) Indians (1.2b), Indonesians(240m), Filipinos(93m) etc, then
you begin to realize that the resources boom will get a lot bigger
and last many years to come. GDP per capita is $45,000 for USA, $4,000
for China, and $1,500 for India here in 2010, but it is rising very
rapidly. Note that GDP per capita for China and India is deceptive
as many people in the country earn virtual nothing so those in the
cities have a GDP per capita a lot higher than the average. The graph
would suggest Copper and Aluminium to be the best pick of all the
In the next decade China expects to welcome 300 million
to the “middle
class”. India expects 300 million, Indonesia 60 million and
Philippines 25 million. Adding in the other global developing economies
and you can easily see one billion (1,000,000,000) or more people
entering the so called middle class all within 10 years. Imagine
then, trying to make an extra 1 billion motor bikes, washing machines
etc, and the amount of resources that will be required. It
is unprecedented in our history.
In conclusion, this graph strongly suggests that we
are just at the tip of the iceberg as far as what will happen in
the coming 10 years
for Global Resource companies. Also the graph below confirms this
with the projected continuation of the urbanization of Asia and
then Africa. The boom has only just begun.
The Soft Commodities Boom
The main concept for investors here is that the world
has more and more people each year and less and less arable land
and water, upon which to grow food for the rising world population.
See graph below.
Remember the world’s population is predicted
to grow by 2.6 billion (2,600,000,000) in the next 40 years, or 65
million pa (by 2050 world population expected to be 9.1b). Additionally
more land is required to produce beef and other protein foods which
become more in demand as populations get richer. More grain needs
to be produced to produce protein foods such as Chicken (2kgs protein
required to get 1kg chicken), Pork (4kgs) and Beef (7kgs). So the
demand for soft commodities and the companies that produce them etc
will be driven by two key factors, - a rising number of mouths to
feed and a shift upward towards more protein intense foods. This
bodes well for soft commodities and the companies in the agricultural
sector. See Graph below highlighting the booming demand that will
soon come from the Emerging economies especially for grains such
as wheat and corn. Imagine if we add the extra demand for corn if
we make our plastics from corn.
Possible 2009 Themes
The Emerging middle class of China, India and Asia
Renewable Energy continues to grow market share.
of South America and Africa begin to emerge.
Resources and Soft
Commodities become increasingly valuable.
NB : The content of this newsletter should not be relied on as advice.
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.