Emerging Markets: It's when, not if!

In 2020, (God and new job willing), I will celebrate three decades of experience in the asset management industry. Over that period, a hell of a lot has changed, but, there has been, and will be, one enduring constant…

The tiger sleeps tonight

Aficionados of 1980s pop culture will doubtless appreciate that the threesome Tight Fit enjoyed a huge number one single with a song entitled “The Lion Sleeps Tonight” (which trivia fans might be delighted to learn is one of many cover versions of the 1939 Zulu anthem “Mbube”).

Way back at the beginning of 1993, when I was still the proud holder of a “Young persons’ rail card”, I was asked to write an article about the so-called “Tiger economies” for a publication entitled “Investment World”. The concept of Emerging Markets really hadn’t hit the mainstream at that point, and Japan was well into its lost decade (which subsequently became plural and then thrice). But, “Pacific Basin”, which I took to mean anywhere surrounded by the Pacific Ocean south of Japan, was the area that everybody wanted to invest in.

It seems odd now but there could be some rationale to my youthful and instinctive interpretation of Pacific Basin that still holds water today. Seoul and Tokyo are approximately equidistant from the equator. Meanwhile, in the 90s, nobody would have even considered investing in China, but Shanghai is unquestionably closer to Australia than the southern tip of Japan and, back then, Shenzhen (even further south and a great deal further west) was nothing more than a sleepy fishing village. Today, from Shekou ferry port to the west and Dameisha beach on its eastern extremity, the urban sprawl of Shenzhen stretches almost 70 km – approximately equating to the distance between central London and Brighton.

Anyway, back to the Tiger economy article, it was mainly about Hong Kong because this was virtually the pre-internet days, and research was all about flicking through the hard copies of trade journals. The main conclusion to my article was that Hong Kong was the west’s gateway to the east and capital flows would lift the Hang Seng index (HSI) up to the 8,000 points level by the end of the year.

This is the point when I was told in no uncertain terms that making forecasts can make or break a person’s career (it’s true, I have made a veritable raft of unpublished, errant forecasts over the years) and, if I insisted on making one now and going high, I should moderate it to 6500 points. As I remember, the HSI ended the year around the 10,000 point level – today it stands at 26,000, and, if you think that sounds impressive, please bear in mind that the Dow Jones Industrial Average (old school, I know) stood at 3500 at the end of 1993, ended the century at 11,000 and is now trading close to 25,000.

Has some economic miracle happened in the US (or in any major developed market for that matter) in the last 25 years?

Has US infrastructure improved dramatically?

Has the number of US folk subsisting on food stamps fallen by 90%?

Of course, all of these questions are rhetorical, Donald Trump’s pomposity notwithstanding, and don’t require answering…but how about a few more?

Is the Emerging Markets universe characterised by massive industrialisation and an explosion of middle class consumers?

Is it grossly, or even fatuously, under-represented in global stock indices compared to its contribution to global GDP?

As for poor old (‘three lost decades’) Japan, despite being mired in the deepest economic malaise, can it possibly be the case that the country remains at the cutting edge of the robotics revolution, or that it has managed to cut the time of its Shinkansen bullet train service by around 70% since 1964?

Yes, yes and yes! Just to add some colour to the answer to the second question, in free weight terms, emerging markets comprise around 10% of the MSCI Global Index, yet the associated economies contribute over 50% of global GDP.

In a week in which the S&P500 hit yet another record high and Reuters ran an article entitled ‘Safe havens emerge in China, South Asia as recession risks grow’, could we be about to enter an era in which bloated, western markets finally cede ascendancy to the emerging universe and developed markets within Asia?

‘This is what we’re gonna do…’

I began with a musical analogy and, for the sake of closing the circuit, I will also finish with one.

The preceding subheading is a line from the Village People’s third hit entitled “Go West” (which was covered by the Pet Shop Boys in 1993). Investors could be well advised to ignore this advice and look east!

The views conveyed in the above post are solely my own. If you have enjoyed reading it, please feel free to like or comment. I am currently seeking a new professional challenge and would be delighted to consider freelance work or temporary/permanent contracts as and when suitable positions become available. Please contact me via LinkedIn or send an invitation to connect.