International vs. U.S. Growth

Recently, CIBC World Markets’ Jeff Rubin, who is Chief Economist, and Avery Shenfeld, a Managing Director, produced a slide show called “The Age of Scarcity.” To see the slideshow in full, click here.

This slideshow helps me understand why my domestic and Europe investments are off so much more this year than my investments in emerging markets. Among the surprising findings are the following:

• The U.S. is responsible for only 10% or so of global GDP growth, the Euro zone for about 8%. But the emerging markets, including Brazil, Russia, India, China and the mid-East oil producers are responsible for 37%.

• All the major regions, including the Euro zone, Latin America and emerging Asia are much less dependent on the U.S. market for exports than they were in 2000. For example, in 2000 the Euro zone depended on the U.S. for 17% of its exports. Now it is something just north of 13%. As a result, a two percentage point decline in U.S. GDP growth would produce declines of half a percent, or less, in many of our trading partners.

• While U.S. demand for aluminum, nickel, copper, zinc and oil has declined during the period of 2005 to 2007, the demand in China has increased substantially. In aluminum, its demand has grown by 30% over that period of time.

• While U.S. and Europe are seeing minimal growth or shrinkage in their rate of automobile ownership, Russia and China are growing at rates over 50% and 20% respectively.
  

Of course, domestic and European companies with a high proportion of their businesses in growing markets can do well despite slow conditions in their home markets. For example, in the U.S., Celanese Corporation is operating at record rates, with high profits, due to its strong positions in fast-growing Asian markets.

Overall, these developing markets are a growing force in the growth of larger companies. To be a successful long-term player, you have to sell where the growth is. See Basic Strategy Guide Step 6 in StrategyStreet.com.