Where’s the Growth? – Opportunities in Emerging Economies
The overall sentiment of the market and global economy has continued to swing back and forth between confidence and skepticism. More soft data points, political bickering, stubborn unemployment, etc. continue to plague us, but there are opportunities to be had even though the future is cloudy. Believe it or not, there are areas we view optimistically.
Many companies have reported solid earnings recently with 73% of the Standard & Poor’s (S&P) 500 beating earning expectations for the second quarter, despite the economic soft patch we hit and the Eurozone’s financial issues. Corporations have shored up balance sheets and have reached all-time highs with the amount of cash they have available, putting them in generally strong and healthy financial positions. However, political inaction and the inability of the lawmakers in Washington and in other developed countries to make effective policy decisions has created vast uncertainty. The Europeans struggle to set aside their pasts and cultural differences to form any type of fiscal or banking union although it seems apparent they need a more unified approach. In Washington, we have two diametrically opposed parties who have become so polarized that they can’t find any common ground. These problems are ideological and hinder their abilities to make decisions. Given this polarization and paralysis, companies have opted to compile cash or return it to shareholders in the form of higher dividends or stock repurchases and not re-invest for future growth or spend on additional hiring. On a global level, developing economies currently hold 67% of the world’s total cash reserves compared to 37% in 2000 underlining the relative strengthening of their balance sheets over the past decade. We will likely continue to see slow growth rates and a lack of re-investment in developed economies until this uncertainty dissipates and there is more clarity from lawmakers.
There are areas with strong growth potential however – specifically emerging markets and multinational corporations with revenue streams derived from emerging economies. While the developed world is riddled with the problems of over consumption, astronomical debt, expensive labor forces, and policy inactions, the emerging countries and strong corporations have healthy balance sheets, trade surpluses, serve a growing middle class with an eye to higher living standards, and perhaps most importantly can make and execute policy decisions. While this generates its own risks, these entities will do what’s needed to stimulate their economies or make good investments when appropriate. These factors allow multinationals and developing economies to be much more decisive and direct with the re-deployment of profits and cash that will likely lead towards more growth opportunities in the short and long-term horizons.
Multinationals have already begun to re-deploy their cash through building manufacturing plants, ramping up advertising campaigns, and opening offices abroad. Although the demand from developed nations in emerging markets is expected to slow, there is a lot of room for domestic demand growth and investment, especially relative to domestic demand growth in developed nations, as living standards and incomes rise for the consumers in these emerging economies. They are growing rapidly and have the financial means, demographics and desire to become larger global players. Of course, the million dollar question is when to add exposure to this volatile market segment.
For more discussion on that and other points we have included two articles from portfolio managers at PIMCO and Oppenheimer funds on the outlook for emerging markets, where opportunities exist, how specific countries are shaping up, the effects of the Eurozone outcome on these opportunities and more.
We hope you find this interesting and useful as we continue in our effort to provide you with our thoughts and insights. White swans?! Believe it or not – they do exist. If you have questions or would like to discuss anything in more detail. Please give us a call.
Robert J. Miller
Wealth Advisor/VP Operations
Greater Midwest Financial Group, LLC.
102 N Karlov Ave
Chicago, IL 60624-3047
robert.Miller@lpl.com
Securities Offered Through LPL Financial
Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing involves risk including loss of principal. International investing involves special risks such as currently fluctuation and political instability and may not be suitable for all investors.
This entry was posted
on Wednesday, August 29th, 2012 at 11:31 am and is filed under Market Commentary.
You can follow any responses to this entry through the RSS 2.0 feed.
Responses are currently closed, but you can trackback from your own site.
August Market Update
Where’s the Growth? – Opportunities in Emerging Economies
The overall sentiment of the market and global economy has continued to swing back and forth between confidence and skepticism. More soft data points, political bickering, stubborn unemployment, etc. continue to plague us, but there are opportunities to be had even though the future is cloudy. Believe it or not, there are areas we view optimistically.
Many companies have reported solid earnings recently with 73% of the Standard & Poor’s (S&P) 500 beating earning expectations for the second quarter, despite the economic soft patch we hit and the Eurozone’s financial issues. Corporations have shored up balance sheets and have reached all-time highs with the amount of cash they have available, putting them in generally strong and healthy financial positions. However, political inaction and the inability of the lawmakers in Washington and in other developed countries to make effective policy decisions has created vast uncertainty. The Europeans struggle to set aside their pasts and cultural differences to form any type of fiscal or banking union although it seems apparent they need a more unified approach. In Washington, we have two diametrically opposed parties who have become so polarized that they can’t find any common ground. These problems are ideological and hinder their abilities to make decisions. Given this polarization and paralysis, companies have opted to compile cash or return it to shareholders in the form of higher dividends or stock repurchases and not re-invest for future growth or spend on additional hiring. On a global level, developing economies currently hold 67% of the world’s total cash reserves compared to 37% in 2000 underlining the relative strengthening of their balance sheets over the past decade. We will likely continue to see slow growth rates and a lack of re-investment in developed economies until this uncertainty dissipates and there is more clarity from lawmakers.
There are areas with strong growth potential however – specifically emerging markets and multinational corporations with revenue streams derived from emerging economies. While the developed world is riddled with the problems of over consumption, astronomical debt, expensive labor forces, and policy inactions, the emerging countries and strong corporations have healthy balance sheets, trade surpluses, serve a growing middle class with an eye to higher living standards, and perhaps most importantly can make and execute policy decisions. While this generates its own risks, these entities will do what’s needed to stimulate their economies or make good investments when appropriate. These factors allow multinationals and developing economies to be much more decisive and direct with the re-deployment of profits and cash that will likely lead towards more growth opportunities in the short and long-term horizons.
Multinationals have already begun to re-deploy their cash through building manufacturing plants, ramping up advertising campaigns, and opening offices abroad. Although the demand from developed nations in emerging markets is expected to slow, there is a lot of room for domestic demand growth and investment, especially relative to domestic demand growth in developed nations, as living standards and incomes rise for the consumers in these emerging economies. They are growing rapidly and have the financial means, demographics and desire to become larger global players. Of course, the million dollar question is when to add exposure to this volatile market segment.
For more discussion on that and other points we have included two articles from portfolio managers at PIMCO and Oppenheimer funds on the outlook for emerging markets, where opportunities exist, how specific countries are shaping up, the effects of the Eurozone outcome on these opportunities and more.
We hope you find this interesting and useful as we continue in our effort to provide you with our thoughts and insights. White swans?! Believe it or not – they do exist. If you have questions or would like to discuss anything in more detail. Please give us a call.
PIMCO Outlook Series June 2012
Oppenheimer Focus Piece 2012
Robert J. Miller
Wealth Advisor/VP Operations
Greater Midwest Financial Group, LLC.
102 N Karlov Ave
Chicago, IL 60624-3047
robert.Miller@lpl.com
Securities Offered Through LPL Financial
Member FINRA/SIPC
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Stock investing involves risk including loss of principal. International investing involves special risks such as currently fluctuation and political instability and may not be suitable for all investors.
This entry was posted on Wednesday, August 29th, 2012 at 11:31 am and is filed under Market Commentary. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.