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The Investor
Globalize Your Portfolio!
Sure, you may have lost your job to China, but that’s no reason not to invest there. You’ll regret it if you don’t.
Sure, you may have lost your job to China, but there’s still no reason not to invest there — and India, Brazil, Indonesia, and other emerging markets. In fact, it’s a financial imperative.
That is the message I took away from a breakfast program at the Ritz-Carlton in northern Virginia last week by my friend, investment advisor and fellow St. Louis expatriate Pat Kearns. He hosted a presentation by Cam Cowden, a vice president with the Oppenheimer Funds.
Consider that there are now a billion and a half middle class consumers in emerging markets and that number is expected to grow to over 3 billion by 2030. Cowden calls this massive expansion of the global middle class “the biggest economic event of our lifetime” — at least for investors (which include almost everyone when you factor in pension funds, IRAs and the like). This emerging middle class embodies the customers who will be the all-consuming focus of American businesses. These consumers will decide the winners and losers in the great global competition.
Cowden cited Yum Brands, which owns and operates KFC and Taco Bell among other such businesses. 64 percent of its revenue comes from overseas, and it has a 40 percent market share in China, where it opens four outlets a day.
General Motors, which sells cars in 120 countries, sells more cars in China than in the U.S. Moreover, while there are 900 American drivers for every 1,000 people, there are only 30 Chinese drivers per 1,000. The potential growth is unimaginable. According to the World Bank and other sources, China alone will account for 28 percent of world GDP by 2035.
Evidently, only one out of eight people in India brush their teeth every day. It is not impossible, given the rate of population and economic growth, that one half of the population will start brushing over the next two decades. Already Colgate generates 24 percent of its revenue from overseas. Can flossing and gargling be far behind?
Coca-Cola garners 80 percent of its business abroad, doing very nicely, no doubt, in many countries where alcoholic beverages are frowned upon.
Eight-seven percent of the world’s population lives in emerging markets countries. Even more important, again, from the perspective of economic growth and investment, these are very young and vibrant populations. Of Brazil’s nearly 200 million citizens, 43 percent are between the ages of 25 and 54. Only 14 percent are over 54. India has 600 million of its 1.2 billion citizens under the age of 24, ready and willing to enter the work force for decades to come. These are the earners and spenders who will drive economic growth for the long term.
Pat Kearns opined that when it comes to emerging markets, mutual funds make a lot more sense than trying to pick stocks across the globe where you have differing cultures and accounting standards.
I was particularly struck by the fixed income opportunities presented by these emerging economies. Cam Cowden reviewed the yields on various countries’ bonds as well as their debt-to-GDP ratios. The data is telling. Compare the U.S. and its 10-year Treasuries at 1.78 percent yield (and dropping), with a debt/GDP ratio of 93 percent, versus Brazil with a 12.32 percent yield on its 15-year government bond and only a 64 percent debt/GDP ratio. For Turkey, the numbers are 9.46 percent and 45 percent respectively. For Mexico, which has not had very good press of late given drug wars and immigration issues, its yield is 6.13 percent. Its debt/GDP ratio is 45 percent.
Mr. Cowden, warming to his theme, described the present time as a “golden age” for emerging markets for fixed income investments. In addition, 62 percent of U.S. goods are imported. Wages overseas have been going up at the rate of 13.6 percent.
So there is a need to globalize your portfolio to take advantage of growth sufficient to get you ahead of the inflation curve.
Pat Kearns observed that in a democracy like ours, it is tough to do hard, unpopular things such as cut spending on benefits or raise taxes. Inflation becomes “Door Number 3” which gives politicians a way to reduce debt painlessly — for them, that is. Low returns on bonds in this country are a real problem for investors, said Kearns, recalling that for thirty years, 1950-1980, the U.S. experienced a bear market in bonds. Thus, fixed income investment opportunities in emerging markets are important to consider.
So the investor ain’t in Kansas anymore. Not even New York.
About the Author
G. Tracy Mehan, III served at the U.S. Environmental Protection Agency in the administrations of both Presidents Bush. He is a consultant in Arlington, Virginia, and an adjunct professor at George Mason University School of Law.
Letter to the Editor View all comments (16) | Leave a comment
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POST American| 9.15.11 @ 6:30AM
-----Globalist RED China sellout and
TREASON OP 'NORM---ALL--SEE' --HIGH ALERT!--
Forget investing in the RED Chinese-Globalist
and EUGENICS wage slave 'paradise'
-----START taking a sustained and unflinching
interest in clearing the INTER-national parasites off
your local REAL ESTATE -----ie America.
FINALLY, as that FUKISHIMA fallout
rains across America, we hope the
Rockefellows have let the writer in
on their nifty, latest, elite collation therapies.
He sure deserves it.
Bob K.| 9.15.11 @ 7:44AM
I hope you have your tongue firmly in your cheek, Mr. Mehan because if we were all Washington DC Bureaucrats, Lawyers and College Professors, like yourself, the author of this fantasy, who got where you were by shining shoes in both of the Bush Presidencies, we would probably have had the insider information and portfolios needed to invest in this Brave New Global World! As it is, it was our tax money and our foreign aid which put these countries in this position.
Melvin| 9.15.11 @ 8:20AM
Of course I'm being quite sarcastic. Oh sure I would like to invest in Communist China, but the problem is, a person here has to have money to invest, but since the vast majority of jobs have fled to China, and it's no regulations, No EPA, no OSHA and most important it's .85 cents an hour slave labor, just does Mr. Mehan propose we get the money to invest in this grand bargain.
"Mr. Mehan, hey buddy can ya spare a dollar."
Bob K.| 9.15.11 @ 8:24AM
By the way, Mr. Mehan,
During your two periods of employment in the U.S. Environmental Protection Agency under both Presidents Bush did you have any influence on regulations that may have made American Business less competitive with these new Global Industries?
JP| 9.15.11 @ 8:27AM
Sounds much like a Larry Kudlow pep rally circa 2004. The "investor" class (here I mean institutional investors) has cleaned up pretty well the last decade or so. During the recession, the DJIA even re-couped most of its 2008 losses. But, the prices has been steep; QE1, QE2, a huge stimulus, and record annual federal budget defecits. All of that liquidity has gone into stock and commodity speculation, all the while the dollar is getting hammered. Not much value in US denominated assets (ie stocks). Anything bought and sold with dollars is a crap shoot.
So, we go overseas. Yes, large populations in India and China (also Indonesia and portions of South America) seem ripe for the pickings. But China and India depend heavily on exports to the US and Europe. But, the US and Europe are both heavily indebted, and their public finances are in a mess. Politically, the US and European political situations are in as bad as shape as thier economies. If the US/Euro catch a cold, China and India will get the flu.
Clint| 9.15.11 @ 9:54AM
"Why Gold Beats Inflation
Gold beats inflation because it stays static, functions as a type of money, and it can’t be printed by corrupt central bankers. It’s value is based on supply and demand, just like paper money — only it can’t be printed to cause inflation, unlike paper money.
This is actually why we don’t have the gold standard today — politicians like paper money because it can be inflated and deflated depending on the political winds. So the very reason we have paper money is the very reason gold beats inflation."
kurt| 9.15.11 @ 10:07AM
Advice from another GOVERNMENT EMPLOYED(with a fat govenment provided pension) TRAITOR!!! No loyalty to their home country what so ever! Mahen, move the heck to China, YOU TURD!!
Bob K.| 9.15.11 @ 10:14AM
Mr. Mehan,
I noticed in your second paragraph that you described yourself and your friend Mr. Kearns as fellow St. Louis expatriate(s). I assume that this is because you both now work in the Washington DC area.
I find this both common and curious with those who have removed themselves to Washington DC. It does not happen to other citizens who go to other places in our great nation to secure work. They don't consider themselves "expatriates."
Consider the etymology and definitions of the word: "To leave ones native country to live elsewhere." "To withdraw from residence or allegiance to one's native country."
I am beginning to think that the people who live in and around Washington DC may in an unconscious way no longer think of themselves as citizens of our great nation.
Your article here is just one more bit of evidence of this increasing and disturbing mind set and it may explain in part the reasons why our elected officials and bureaucrats routinely ignore or fail to recognize the expressed views of the electorate.
In short, there is a dirth of Patriotism where it is most needed! Right in the nation's capitol!
I wonder if RET,Jr and Henry Regnery, who have moved their businesses out of the heartland and into the DC area realize this.
fmm| 9.15.11 @ 11:43AM
I have been fortunate enough to find an investment firm for my IRA which already understands these issues and uses them wisely. Since the idea of investing is to make money, funds need to be put where they do the heaviest lifting. Given the heavily over regulated state of the US economy along with the unmanageable debt load, investing globally makes sense and money. It is foolish to think otherwise.
Seek| 9.15.11 @ 1:28PM
Conservative financial journalist Larry Kudlow argues that while China is a rival, and often doesn't play fair, we should take the "trust but verify" approach with the Chinese that Reagan did with the Soviets. Such a stance will protect us from Chinese perfidy yet preserve investment opportunity. So long we get our own house in order, Kudlow argues, we will come out ahead.
http://www.nationalreview.com/.....low?page=1
What do people here think?
Bob K.| 9.15.11 @ 3:12PM
That might work out but we hardly have our own Financial Houses in order and we can't start on putting it into order until there are some indictments and ultimately convictions handed down and meted out against the people responsible for our melt down. Kudlow thinks it is alright to ignore this.
How this policy of "see no evil and prosecute no one" will inspire trust in investing in our own institutions and businesses is a mystery. Yet people still advise investing in China which is a sink hole of corruption! If we can't control our own petty crooks here and trust investing here in the USA why on earth would we want to risk our money in China with their foreign and inscrutable crooks?
Ken (Old Texican)| 9.15.11 @ 1:39PM
Tracy...
SCREW YOU!
I'm investing in bullets to shoot Chinese!
frank from st. louis| 9.15.11 @ 5:49PM
good article, as always, from tas' indefatigable tracy mehan! one countering thought, though: rather than toying directly with the risks of political and foreign currency instability, just invest in some of the american based multinationals and exporters, like cat, ko, wmt, xom, ba and jnj, for instance...these behemoths earn the bulk of their dough overseas or soon will, but their governance is rock solid american...i prefer not to pay the mutual fund weenies to wreck my investments; i can do that for free...with domestic equities, there are no revolutions, nationalizations, left handed accounting or insurgents to worry about!...as for foreign bonds, i prefer to buy u.s. treasury paper, even if the yields are miniscule...
JC | 9.15.11 @ 7:15PM
I'll regret it if I don't invest in China? I hate everything about China's business model. I can't even stand the products made there. Sure let me give them what's left of my 401(K).
POST American| 9.15.11 @ 11:11PM
--------------------BOTTOM LINE----------------------
The good people of China have been
destroyed three times over by British
East India (USURY and Opium front op
having NOTHING to do with the British
people)----by the MIlner Group RIIA
----and, most recently, by the Globalism/
world USURY and EUGENICS CFR/RIIA.
David Rockefeller's published, public praise
for Mao and the greatest halocaust in
recorded history can be viewed by
anyone online. (NYT editorial from the
70's).
Likewise the layout of our own takedown
in Declassified State Dept. MEMO 200
from 1975.
-AGAIN, about that enhanced
new chapter to NUREMBERG,
and that 'get down' sequel to HUAC.
Nomad| 9.19.11 @ 6:58PM
I am incensed by this article. Last year, our community buried a beautiful, bright 17 year old high school student, the oldest of five children. She died of a form of cancer which, if caught early, is highly treatable. She didn't get treatment in time because she kept her early symptoms to herself. Why? Because both her parents had lost their jobs, had no health insurance and were struggling to keep their children fed and clothed by working multiple part-time and temp jobs. By the time she could no longer hide her illness and her parents took her to our local public hospital, it was too late.
No child should die because the wealthy in this country discovered the golden ticket of cheap overseas labor. But millions of children across this country are not getting medical attention they desperately need while these same robber barons are reaping the boon of overseas investments. Even for typical head-in-the-sand conservatives, this article is outrageously thoughtless and a clear sign that those inside the Beltway (or even nearby) are living in a bubble of denial.