Today's comment is by Mike Burnick, our Senior Editor, Global Markets Analyst and editor of Global Market Investor.
Dear A-Letter Reader,
Amid the gloom and doom of the recent market correction, there is some good news that has so far been largely ignored.
Recently, while the Dow was on its way to posting a triple-digit loss, the International Monetary Fund (IMF) issued an update to its World Economic Outlook. The bottom line is the IMF sees the global economy expanding both this year and next, at an even faster rate than before.
According to the IMF's new calculus, global GDP growth should advance 5.2% in 2007. They expect the same above-trend growth rate to continue in 2008 as well. You can probably guess that the main "swing factor" in this upgrade is China . This monster economy recently announced 2nd quarter GDP that surged nearly 12% over the same period last year!
According to the IMF's statement, "Emerging market countries have continued to expand robustly, led by rapid growth in China, India and Russia." That's not really a newsflash for global investors who have long benefited from investments in these countries.
Sticking out like a sore thumb in this same report is the fact that the IMF reduced its expectation for U.S. growth to just 2% this year - while global growth is surging at more than twice that rate! These numbers just drive home the point once again that U.S. investors should be looking offshore for better investment opportunities.
International Markets Feature Stronger Growth, Higher Returns
According to analysis from Henderson Global Investors, "Strong growth in emerging economies is boosting global growth to a 35-year high." It's too bad the U.S. isn't more fully participating in the global growth party.
As you can see in the chart above, China's economy is expected to surge 11.2% this year, and even this may be a conservative estimate. Emerging markets as a whole should expand about 8% in 2007. Meanwhile, more mature, advanced global economies, will only grow 2.6% (weighed down in large part by below-trend growth in the U.S.).
Emerging Asia too is a hotspot of economic activity. Obviously China skews the numbers higher for the entire region, but many economies neighboring China are also enjoying very robust growth.
India is growing at 9%. Singapore's economy should expand about 6%. The four main countries in the Association of Southeast Asian Nations (including Singapore, plus Malaysia, Indonesia, and the Philippines) are growing at a rate of 5.5%. Even industrialized Asian nations like Korea and Taiwan are benefiting with above-trend growth.
China's Continued Expansion is Simply Amazing...and Should Boost All of Asia
The economic data flowing out of China continues to amaze me...
* China's largest publicly traded companies grew their profits about 80% in the first quarter. By contrast in the U.S., S&P 500 earnings expanded about 8% during the same period - in other words: profits in China are growing 10 times FASTER!
* China's fixed asset investment has expanded more than 30% annually since 2004!
* GDP growth in China totaled nearly 12% in the second quarter - the fastest economic expansion in the entire world today, while the U.S. economy grew a bit over 3%.
Since China joined the World Trade Organization in late 2001, its export growth has boomed at an average of 30% per year. Of course, exports are critical to China's success. In fact, exports alone account for more than 40% of China's GDP. But domestic demand and consumption in China is also growing fast, which is the key to China's future.
China's domestic fixed investment is booming at 27% year-over-year. And consumer spending is growing at a double-digit annual pace, as reflected by China's second quarter retail sales growth of 12%. Again, that's three times faster than U.S. retail sales, which expanded just 4% during the same period!
Profiting from Attractive Investments in China's Neighborhood
China's rapid expansion is boosting growth rates in neighboring countries too. This makes these countries red-hot investment destinations, which also offer better value.
For instance, Taiwan (the other China ) saw its export orders surge 15% in June to a record US$28.7 billion, led mainly by a surge in high-tech products. Why? Because Taiwan's biggest export markets are China and Hong Kong! In fact, last year, 11% of China's total imports arrived from Taiwan.
Also, the ASEAN nations, as mentioned above, are growing at a brisk pace thanks to their proximity to China. The ASEAN economies represent a regional trading bloc, similar to NAFTA between the U.S., Canada and Mexico, but ASEAN is expanding much faster !
Singapore's economy has a large service-sector component, and the nation is growing rich on increased global trade and demand for financial services in the region.
Meanwhile, Indonesia and Malaysia are both rich in natural resources and China will continue to be a very good customer, consuming commodities at a growing rate.
So even though we are in the midst of a credit crunch, which has triggered yet another pullback in global markets, there is still a silver lining in these storm clouds. At least, there's a silver lining for global investors in international markets who see this as a great long-term buying opportunity.
MIKE BURNICK, Senior Editor & Global Markets Analyst
P.S. Recently, I provided subscribers to my Global Market Investor service with an update about several specific investments that target these fast-growing Asian markets. If you would like to know which markets I believe offer the richest investment potential over the long haul and the best ways to position yourself for profits in emerging Asia right now, Click here!