Emerging markets are a safe bet in turbulent times

Hello and welcome to the Someplace Else Blog

A topsy turvy week
Goodness me, what a week we’ve had. Stockbrokers and bankers across the western world must be going grey and losing their hair at unprecedented rates. With Wall St having one of its most tumultuous weeks ever, one could be forgiven for thinking we’re in the middle of a perfect storm where everybody will be negatively affected and that a “baton down the hatches” approach would be the best bet all round.

Cui bono - who is benefitting from the credit crunch?
Thankfully the Someplace Else team are a little bit more upbeat than most commentators and doomsayers out there and we try to spot opportunities in every situation. Firstly, let’s bear in mind that a crisis produces winners and well as losers. The people benefiting most from USA, UK and Irish economic downturns seem to be the low cost supermarkets (stealing market share from pricier rivals), sovereign wealth funds (snapping up valuable assets at bargain basement prices) and the super rich (whose wealth is actually increasing quite dramatically, especially the newly wealthy from emerging markets).

Much of the blame for this mess can be pinned on a banking system that permitted risky mortgage lending practices and so it stands to reason that countries that have a low percentage (less than 10%) of mortgage debt as a percentage of their GDP (China, India, Romania, Panama, Brazil, Germany) will suffer nowhere near the after affects that debt heavy (40-50%+) countries like UK, Ireland, USA, France etc.).

What other trends can we spot?
One of the big trends that stands out over the last decade are that world growth is nowhere near as dependent on a strong west as it used to be. Emerging market investors should be particularly pleased to learn that these countries have now gotten so big and powerful that they no longer need a strong United States to grow their economies. Domestic consumption in emerging economies is now rising three times faster than consumption in the developed world. Investment is even better according to HSBC, with capital spending up a massive 17% in emerging markets compared to 1.2% in rich countries.

Additionally - the four biggest emerging economies, which accounted for about 40% of global GDP growth last year, are the least dependent on the USA. Exports to America account for just 8% of China’s GDP, 4% of India’s, 3% of Brazils and 1% of Russia’s. Struggling global bankers should also be particularly grateful that liquid investors throughout Asia and the Middle East are on hand lend them money to help repair their balance sheets.

A safe bet in turbulent times
The point I’m trying to make is that emerging markets are a safe bet in turbulent times. Whatever angle you look at them from, they are in a fundamentally stronger position than the traditional “safe” property markets and will be for quite a few years. Why tie up your hard earned cash in struggling low interest banks, volatile stock markets and falling housing markets with low rental yields when it can be diversified and put to much better use elsewhere?

Someplace Else will be launching a series of very interesting and innovative new developments in over the coming weeks, and we are only too happy to discuss them with you in advance if you’d like to get in touch. There’s also great value to be had in current projects on the books, such as the Buenos Aires and Berlin.

As always, feedback (both good and bad) on this blog or our weekly newsletters is most welcome.

Regards
Colin Murphy