The Shifting World to the East

The United States has been the pioneer of ideas, research, innovation supported by ample wealth and tremendous vision of its Govt over the last century.

However, with the demographic shift (more older people people in the western world versus more younger people in the Emerging Markets of Asia, Latin America & Africa) jostling for the same pie has led to the rise of the powers in Asia.

For the past 2 years in a row, US has not been a leader in stock listings and bond issuances. New York has been replaced by Shanghai and HK.

Today's Bloomberg article confirms my view of the past few years that more and more companies from China, India, Brazil, Indonesia, Malaysia, Korea, Taiwan, Singapore and HK etc shall continue to rise since they offer a growth opportunity which was once available in Europe and USA over the past half century.

The reasons of the rise of rest of the world are very clear (now):
- Strong domestic consumption (due to rising middle class) - same as in Europe and US due to baby boomer generation in the 60's and 70's;
- Growing business opportunity - same as in Europe and USA in the 60's and 70's;
- Rising stock markets as a barometer - same as in Europe and US in the 60's and 70's;
- Rising currency values of Chinese Yuan, Indian Rupee, Singapore dollar, South African Rand, Brazilian Real - same as USD and GBP in 60's and 70's;
- Rapid Development of infrastructure - same as in US and Europe in the 60's and 70's;
- Strength and stability of the Govts especially financial strength - same as in Europe and US in the 60's and the 70's.

The theme is very clear, that over the next 10 to 20 years, all the above reasons will continue to drive growth in the emerging economies.

We also need to remember that US and European companies continue to grow more rapidly abroad than they are doing at their home base.

All this is leading to growing wealth in the Emerging Markets including rising IPO's and new bond issues which would be inconceivable just a decade ago.

The roar of the collective Emerging Markets led by China and India can be heard if you listen carefully.

In my view, China, Brazil and India will do very well over the next 5 years in almost all economic aspects followed by Russia. China shall also have influence on the growth of Indonesia, Korea, Taiwan, HK, Singapore among others since the highest consumption, export driven economy with the highest population supported by the strongest Govt in the region (with USD 2.6 TRILLION in reserves) IS China.

If this trend of the past 2 years of more IPO's being issued in Emerging Markets continues, then it is only a matter of time, that the rest of the world will become 70% of stock market capitalisation instead of 60% today which is when America will start losing its influence over rest of the world. We must note here that about a decade ago, US was 50% of the world's stock markets compared to 40% today and expected 30% by 2020.

Meanwhile, various countries are working to protect themselves which has been dubbed as the Currency Wars.

America knows the change will happen, other countries know it too that it is just a matter of time i.e. slow and gradual rise because most emerging markets can ill afford to disrupt the economic balance suddenly which could even lead to the downfall of some of the still "emerging markets".

Hence, if investments need to be considered, then do not shy away from Emerging Markets since that is where the growth and opportunity is.

To be smart and successful while keeping the principal investment intact, it is just wise to know that companies and countries with the highest cash reserves will do the best, in the coming years.

IPOs in Asia Grab Record Share of Funds as U.S. Offers Dry Up
By Michael Tsang and Lee Spears - Oct 27, 2010 8:01 PM GMT+0400