Globalization- Measures of Hope parallel economic measures

Globalization- Measures of Hope parallel economic measures predicting relative outperformance of emerging markets over Western, American S&P 500 in long run

The Economist points out that there are subjective, human factors which accompany my thesis that liquidity will flow to emerging markets, that volatility will continue particularly in emerging markets, and that emerging markets will relatively out perform the American S&P 500 over the long term. These human factors include hope and optimism, which are more prevalent in emerging markets than in the Rich World.

“According to the Pew Research Centre, some 87% of Chinese, 50% of Brazilians and 45% of Indians think their country is going in the right direction, whereas 31% of Britons, 30% of Americans and 26% of the French do. Companies, meanwhile, are investing in “emerging markets” and sidelining the developed world. “Go east, young man” looks set to become the rallying cry of the 21st century.” [italics added]

“Europe, meanwhile, has seen mass protests, some of them violent, on the streets of Athens, Dublin, London, Madrid, Paris and Rome. If the countries on the European Union’s periphery are down in the dumps it is hardly surprising, but there is pessimism at its more successful core too. The bestselling book in Germany is Thilo Sarrazin’s “Germany Does Away with Itself”, a jeremiad about the “fact” that less able women (particularly Muslims) are having more children than their brighter sisters. French intellectuals will soon have Jean-Pierre Chevènement’s “Is France Finished?” on their shelves alongside Eric Zemmour’s “French Melancholy”.”

“The immediate explanation for this asymmetry is the economic crisis, which has not just shaken Westerners’ confidence in the system that they built, but also widened the growth gap between mature and emerging economies. China and India are growing by 10% and 9%, compared with 3% for America and 2% for Europe. Many European countries’ unemployment rates are disgraceful even by their own dismal standards: 41% of young Spaniards are unemployed, for example. And the great American job machine has stalled: one in ten is unemployed and more than a million may have given up looking for work. But the change goes deeper than that-to the dreams that have propelled the West.” [italics added]

“In the emerging world, meanwhile, they are not arguing about pensions, but building colleges. China’s university population has quadrupled in the past two decades. UNESCO notes that the proportion of scientific researchers based in the developing world increased from 30% in 2002 to 38% in 2007. World-class companies such as India’s Infosys and China’s Huawei are beating developed-country competitors.”

“But there are dangers, too. Optimism can easily become irrational exuberance: asset prices in some emerging markets have risen too high. And there is a danger of a Western backlash. Unless developing countries start taking their responsibility for global security seriously, Americans and Europeans may begin to wonder why they are policing the world to keep markets open for others to get rich.” [italics added]

“Nor should Westerners overdo the despair, for the emergence of new great powers will benefit them, too. True, their governments will find it harder to boss the rest of the world around; their most desirable properties will increasingly be owned by foreigners; their children will have to work harder to get good jobs in an increasingly globalised economy. But the rising number of Indians, Chinese and Brazilians who can afford to buy their products and services will help their companies prosper. The countries that have provided them with workers will increasingly provide them with customers too.” [italics added]

Published by Janar Wasito

Janar Wasito is the manager of Magis Capital in San Diego, CA. He is a graduate of Harvard and Stanford Law School, and a former Marine Officer.

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