China and Russia are the new generations of personal wealth and every consumer goods
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Peter Botham Chief Investment Officer…
Central to our investment strategy for 2013 is the belief that there will be modest growth in global GDP and that America will not only provide the main stimulus but that it will surprise many with the degree of upturn as the year progresses. However, many of the developed countries of w e s t e r n E u r o p e , including the UK, will see little or no growth this year and it will be economies in the Far East and Russia that demonstrate the continuing structural shift in global wealth. Many economists and commentators spent a considerable amount of time last year speculating whether China would have a ‘hard’ or a ‘soft’ landing; in other words, would the Chinese economy slow down gradually from the rapid expansionary rates of the past ten years or would it fall back sharply and thus have a severe negative impact on the rest of the world, particularly on countries who relied on exports of raw materials to China. It now seems apparent that the inevitable slow down is not only gradual but is being effectively managed by the Chinese Government.
China is one of the few economic powers in the world which still has the full array of tools available for managing their economy. Western central banks are now unable to wield interest rates as part of their strategy for controlling demand but there is no such problem in China, where the latest Five Year Program has identified interest rates as a key tool for managing the economy by moving the focus away from saving and more towards spending.
This one notion is key to investment trends for the next decade and beyond. China and Russia are the new generators of personal wealth and every consumer goods company in the world is focusing an increasing proportion of its marketing and advertising budget towards these markets. Already the biggest export market for luxury cars from the likes of BMW, Daimler and Rolls Royce is China, as domestic consumption takes over from infrastructure expansion as the next driver of the Chinese economy. A similar trend has been witnessed in Russia where, despite the common perception of oil being the major determinant of economic prosperity, the consumer related sectors account for two thirds of gross domestic product and have driven more than 80% of this GDP growth since 2004 .( Source: Sperbank). Not only does this mean that Russian consumer stocks are too cheap when viewed on the basis of an international comparison but this creation of wealth benefits not just those companies based within Russia. One only has to look at shops in the West End of London to appreciate that most of the buyers for their luxury goods emanate from the Far East, Middle East and Russia and our advice to our clients has been that their portfolios should reflect this global shift in wealth by selecting those economies with the best growth prospects and also those companies which are able to benefit from this new wave of consumer prosperity.
The information contained in this commentary is provided by Brown Shipley for information purposes only. It does not constitute investment advice and should not be treated as a recommendation for investment. The past performance of an investment or market is no guarantee of future results. Any forecasts provided herein are based upon opinion of the market as at this date and are subject to change, depending on future changes in the market. Any prediction, projection or forecast on the economy, stock market or the economic trends of the markets is not necessarily indicative of the future or likely performance. Moreover, the information set forth herein speaks only as of the date indicated; it was not revised to take account of events which have occurred subsequent to the date indicated. The views expressed in this document constitute Brown Shipley’s judgment at the time of issue and are subject to change.
© Brown Shipley February 2013.