UBS organised a lunchtime session yesterday with George Magnus, their Senior Economic Advisor, and author of the recent Uprising: Will Emerging Markets Shape or Shake the World Economy. While Mr Magnus spoke, several investment managers nibbled delicately on Poached and smoked Loch Duart salmon rillete with buckler sorrel, Classic lamb navarin with autumn root vegetables and ratte potato puree, finishing off with White and dark chocolate mousse with chocolate sable, and some coffee. Magnus himself had to pass on his starter, barely got into his main course, and smacked his lips only once upon the dessert.
The question he sought to answer in his book was its subtitle: ‘Will Emerging Markets shake or shape the world economy?’
He broke up the prognosis into 3 indicators:
1. Demographic change: while many Emerging Market (EM) countries are aging rapidly, others (e.g. India, Indonesia, Turkey) are having a boost in working age populations that will continue to last over the next 10-20 years, and can provide a big increase in growth and productivity if they are all gainfully employed. If they aren’t employed, of course, there can be serious social problems.
2. Technological catch-up in EM: some EM countries attain excellence in some aspects of technology (e.g. green tech in China, biotech in India, …). But there isn’t that depth of cultural and social infrastructure that enables them to consistently beat the developed world at all aspects of technical prowess. The catch-up means – for the most part – that the revenues will likely continue to flow into the developed market countries that produce most of the technical knowhow.
3. Climate change: while the worst affected countries by climate change are all EM, they will possibly spend large amounts to develop infrastructure to resist the worst of its effects.
The EM world has developed its manufacturing capacity to supply a world growth rate of about 6% p.a, which was the sort of growth seen in the two decades before the credit crunch. If world growth slows, then this overcapacity can lead to economic problems in the EM as well. And if developed world begins to save more, EM needs to spend more, otherwise we will end up with de-globalisation, protectionism, … As Magnus points out, despite noises at G20 meetings supporting globalisation and open markets, there has been a trend in protectionist measures over past two/three years already impacting about 2% of world trade.
The Chinese seem to understand that they have a part to play in the rebalancing of the world economy, but whether they will actually do anything other than mouth platitudes at 5-year plan announcements remains to be seen.
I got a copy of his book (signed, but not addressed to me) and stepped back into the cold streets of the City. At that same time, another demographic challenge was revealing itself. Students had taken to the streets of London too - only they were protesting increases in their tuition fees as part of UK's fiscal austerity. It's a sad truth: the babyboomers have enjoyed a long, long boom, and will continue to reap its dividends long into retirement, while their children and grandchildren face years of unemployment and relative indigence.
The generational struggle can only get worse.
The question he sought to answer in his book was its subtitle: ‘Will Emerging Markets shake or shape the world economy?’
He broke up the prognosis into 3 indicators:
1. Demographic change: while many Emerging Market (EM) countries are aging rapidly, others (e.g. India, Indonesia, Turkey) are having a boost in working age populations that will continue to last over the next 10-20 years, and can provide a big increase in growth and productivity if they are all gainfully employed. If they aren’t employed, of course, there can be serious social problems.
2. Technological catch-up in EM: some EM countries attain excellence in some aspects of technology (e.g. green tech in China, biotech in India, …). But there isn’t that depth of cultural and social infrastructure that enables them to consistently beat the developed world at all aspects of technical prowess. The catch-up means – for the most part – that the revenues will likely continue to flow into the developed market countries that produce most of the technical knowhow.
3. Climate change: while the worst affected countries by climate change are all EM, they will possibly spend large amounts to develop infrastructure to resist the worst of its effects.
The EM world has developed its manufacturing capacity to supply a world growth rate of about 6% p.a, which was the sort of growth seen in the two decades before the credit crunch. If world growth slows, then this overcapacity can lead to economic problems in the EM as well. And if developed world begins to save more, EM needs to spend more, otherwise we will end up with de-globalisation, protectionism, … As Magnus points out, despite noises at G20 meetings supporting globalisation and open markets, there has been a trend in protectionist measures over past two/three years already impacting about 2% of world trade.
The Chinese seem to understand that they have a part to play in the rebalancing of the world economy, but whether they will actually do anything other than mouth platitudes at 5-year plan announcements remains to be seen.
I got a copy of his book (signed, but not addressed to me) and stepped back into the cold streets of the City. At that same time, another demographic challenge was revealing itself. Students had taken to the streets of London too - only they were protesting increases in their tuition fees as part of UK's fiscal austerity. It's a sad truth: the babyboomers have enjoyed a long, long boom, and will continue to reap its dividends long into retirement, while their children and grandchildren face years of unemployment and relative indigence.
The generational struggle can only get worse.
3 comments:
India has attained excellence in biotech? I'm curious about what India (eventually) does with its mobile & information tech prowess.
Re #3 - Long green-tech infrastructure stocks?
Why green-tech? You could envisage massive walls along the beaches of the tropical countries (a la Holland) to keep out the rising sea. Concrete, more like it. Sigh.
edible concrete? potable sea-water? the word for world is hansel and gretel forest.
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