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Sunday, December 30, 2012

Notes from the USA – a guest post

Women have been rising to positions of authority – not just in politics, but also in the corporate world. Indra Nooyi, Chanda Kochhar, Naina Lal Kidwai, Vineeta Bali are some of the names that come to mind. However, their numbers, while growing, are still too small to create a big impact on business strategy and decision making.

Likewise, the Asian emerging economies are growing, but have a long way to go before they can take over leadership positions over the western developed economies. In this month’s guest post, KKP presents facts and figures to establish the rising economic power of the Asian economies.

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Like Girl Power, it’s Asia Power in this Century

A lot of people are watching this world move forward, but let’s stop the rotation of the earth and analyze it for a bit. In Westernized nations, as well as in large corporations in the Developing and Emerging Markets, there is a trend of ‘girl power’. What I mean is that women are now being seen in CxO positions - varying from CEO, CFO, CIO, CSO, CMO. These are positions of authority that empower the individual to strategize and execute decisions that have impacts of millions and billions of dollars/rupees on a quarterly basis. It is easy to find who these women are, but I have a different point to make. In short, I am convinced that girls are growing up in this century with a lot of focus, strong will, great thinking power, meticulousness, diligence and business mindedness. They bring a sense of balance and organization skills that allows them to tilt the scale of success in their favour. You might not see it yet in Asia, but girl power is definitely vividly evident in everyday life in the USA. As a result, over the next few decades, we shall see ‘girl power’ in full force, and it will make this century one of ‘Girl Power’.

As an investor, I compare this phenomenon of ‘girl power’ with ‘Asia Power’ that is currently as strong, if not stronger than we are experiencing, and this story has a lot of unfolding to happen in the next few decades. Let’s look back first. The 20th century is widely called as the “American Century” in honour of the role the U.S. played in world politics. The Wikipedia definition of this term is:

“American Century is a characterization of the 20th century as being largely dominated by the US in political, economic and cultural terms. The United States’ influence grew throughout the 20th century (1900-1999), but became especially dominant after the end of World War II, when only two Super-Powers remained i.e the United States and the Soviet Union. After the dissolution of the Soviet Union in 1991, the United States remained the world’s only superpower, and became the hegemon, or what some have termed a hyperpower.

According to a white paper produced by the Australian Government (http://asiancentury.dpmc.gov.au/white-paper), the 21st century is the Asian Century or Asia Power as I termed it. From the report:

“Within only a few years, Asia will not only be the world’s largest producer of goods and services, it will also be the world’s largest consumer of them. It is already the most populous region in the world. In the future, it will also be home to the majority of the world’s middle class.

1) Asia’s Share of World Output

In the last 20 years, one-third of Asia’s population has re-engaged the world. Standard of living for billions of people has improved. According to one study, between 2000 and 2006, one million people were lifted out of poverty every week in East Asia alone. It took the UK over 50 years to double its income per person during the industrial revolution. In contrast, China and India recently doubled their income per person within a decade.

2) Growth of Manufacturing Industry in Asia

Asia is the manufacturing engine for the world. Initially Japan led Asia in manufacturing. Then low-cost manufacturing moved to Singapore, Taiwan, Hong Kong and South Korea and only highly skilled production remained in Japan. Later as production costs rose in those countries, businesses moved their production facilities to ASEAN countries and then to China. Today China has become the factory floor for the world not only in producing cheap low-cost goods but also high-cost electronic products. Other Asian countries such as India are also catching up with manufacturing but at a slower pace than China.

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3) Asia’s GDP per capita Projection

The world total population is 7.0 billion and the U.S. population is 314.0 million. Asia has more than half of the world’s population at about 3.8 billion. As the income per person grows in Asian countries the middle class population is bound to expand further, and the spending power from these middle class population is what will propel GDP in these nations to sky-rocket, which is what makes ‘Asia Power’.

Investing in various economies of Asia, and ensuring that the percentage allocation in this region stays high through the ups and downs is going to be key to future portfolio success.

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The key is to continue to take charge of this ‘macro trend’, and leverage it to the maximum. By 2025, four of the 10 largest economies will be in Asia – China, India, Indonesia and Japan. Asia is projected to account for half of the world’s output with China alone accounting for half of that.

Rising Asian income per person - Percentage of income per person in North America and Europe

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Bottom line is that ‘Asia Power’, like ‘Girl Power’ is here now, and here to stay, no matter what happens with global politics, US debt, EU instability and also the unrest in many economies. We need to capitalize on this fact in our portfolios and ensure that our portfolio is tilted towards these forces, and patiently wait and watch the success. I am for sure tilting my portfolio towards the blue chips of Asia (not just India) and watching the money tree bear its fruits over the past decade, with more fruits to come as the tree gets taller.

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KKP (Kiran Patel) is a long time investor in the US, investing in US, Indian and Chinese markets for the last 25 years. Investing is a passion, and most recently he has ventured into real estate in the US and also a bit in India. Running user groups, teaching kids at local high school, moderating a group in the US and running Investment Clubs are his current hobbies. He also works full time for a Fortune 100 corporation.

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