GDP figures last week in Beijing showed how a half full glass can well look half empty. Global recovery engine sounds during the night of an inflationary bust waiting to happen. Markets can assimilate all available information, but investors seem unable to hold more than a thought in their head at the same time.
This rearing stresses how investors tend to think in terms binary, emerging or developed, risk or risk-off. But this distinction is no useful for at least three reasons.
It is unnecessary because it fails to take into account the diversity of what we call today the emerging markets. In terms of economic, demographic, governance, human education capital and development of health care and income per capita starting point, these markets are not comparable.
It is also unnecessary because there is no link between economic growth and proven performance of investments.
Finally, it is unnecessary, because usually people do not invest in reference indices (although obviously they can), but companies including the macroeconomic context or market is just one of many influences.
HSBC has carried out some work trying to map an overview of the economic world in 2050. Its conclusions supports optimistic case for investing in emerging markets, predict that the developing world will contribute to two-thirds of a tripling of world economic output in the next 40 years.
As always with very long range forecasts, the numbers involved are designed to impress. Population of India, for example, is expected to reach a huge 1. 6bn here in 2050, more than 200 m. workers China expected to increase by 73pc Saudi Arabia, but the fall by 37pc at the Japan. Per capita GDP will reach multiplied in China but always double the United Kingdom, Australia and even Switzerland in real terms, adjusted for inflation.
Even after all that growth, income per capita in China will still be only one-third of whom enjoy the in the United States. America will always be safe the second more major economy in the world, three times the size of India as big despite a population of only about a quarter.
The problem with these mega-trends puzzles is that although they provide a framework useful general investment thinking, they cannot really help us make the right decisions. Investment performance is only partially on the economic and demographic growth. It is also crucial expectations and evaluation.
To take an extreme example, a slight improvement in the perspective for the Congo could make a better investment that China's expectations concerning the former are quite bad and those on the last rosy enough. Collection of markets such as stock - picking is the degree to which performance exceeds or lack of expectations that matters, not the absolute level of performance.
John Maynard Keynes to this aspect of investment with a beauty contest. As investors we cannot decide if a candidate is beautiful, but if the other judges think - growth of the India looks pretty enough but the money will be made by those who evaluate correctly if it is improving or deteriorating more or less quickly as everyone predicted. Unfortunately, this is a much more arduous than to simply estimating growth itself.
Therefore, are on one level I am too restless on the question of whether China, the India or the Turkey will grow at a faster rate than the France or the Germany in the medium term, but if price I have to pay for that growth adequately protects me against the possibility that he could not occur. Almost certainly the result will be as expected, such as those who extrapolated growth of the Japan at the end of the years 1980 has discovered.
Reading of the it, it is a good argument for paste with unpopular markets with low expectations. As bombed stocks, these can take bad news on the Chin while as China has demonstrated strong growth markets can stumble on even the more modest concern.
But it's too simple. The reality is that a market in rapid growth, great chances to prove a more successful hunting ground for the sustainable growth of inventory type of time, transform the value of a portfolio. Sometimes it's best to disable background music.
Tom Stevenson is an investment at Fidelity International. The views expressed are his own.
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