The world’s financial markets are like a spider’s web; inter-linked and highly connected, strong and flexible, but sometimes fragile, too. The global financial markets have gone through rapid change in the last ten years. Large, emerging economies such as China and India have increased their contribution to global GDP and become true global powers1, causing individuals’ perceptions of the global economy to shift, as well. Perception has the tendency to impact market reality, which is why I was intrigued to see the results of our 2012 Global Investor Sentiment Survey.
The survey (GISS), which polled more than 20,000 participants in 19 countries, revealed that, though emerging economies like China, India, South Korea and Brazil are currently experiencing slower economic growth, individuals believe the rise of emerging markets is here to stay. In fact, about 50% of all participants expect emerging markets to deliver the strongest returns in the next five years, whether in stocks or fixed income.2
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The global investment community has been up in arms (and rightly so) about the Indian government’s attempt to address possible past tax evasion through retroactive tax measures. Many investors started to express their disapproval by withdrawing their dollars, and amid the pressure, the Indian Finance Ministry decided to hold off on enacting the “general anti-avoidance rule” (GAAR) for a year. I believe this is a step in a positive direction, although the debate has simply been delayed and not completely resolved. And, retroactive capital gains taxes are still on the table.
The tax-evasion question leads to another thorny subject: corruption. Corruption can muddy the investment outlook and erode investor confidence, and no nation—developed or emerging—is completely immune. The good news is that in today’s era of information technology, it’s harder to sweep corrupt practices under the rug. Social media has intensified the pressure on policymakers to address these problems, because citizens are watching and reporting them to the world. India has recently found itself in the uncomfortable position of having the media spotlight on some of its struggles with corruption, and the world is watching as the country searches for solutions to squash it.
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This year could prove an interesting one for Africa’s west coastal country, Ghana. Presidential and parliamentary elections are slated to be held by year-end, the results of which are almost sure to impact the shape of the country’s future. President John Atta Mills has stated in the press that he will “take all necessary constitutional steps to ensure the conduct of free, fair and transparent elections.” I certainly hope he’s successful in his efforts, because after a recent investment opportunity exploration trip to Ghana, I’m encouraged by the economy’s 14% growth in 20111 (that’s faster than China!), and would be pleased to see evidence of more positive momentum.
Ghana Grows
Ghana has abundant natural resources, including timber, oil, silver and manganese, but perhaps most important are cocoa and gold, two prized commodities for which Ghana is a key producer. What is generally considered the most important gold mining company in the country is listed on a number of stock exchanges around the world. In the Western world, chocolate is ubiquitous, showing up in everything from instant hot chocolate powder to artisan truffles. In India, gold glitters just about everywhere and the wedding season is fully festooned with it. The global consumer market for these commodities is evident. As important as cocoa is to Ghana’s export business, the country also grows rice, cassava, peanuts, corn and bananas2 in significant quantities, so its agricultural assets are reasonably well diversified.
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Africa is well known for its wealth of natural resources, which includes oil and gas, a variety of metals and minerals as well as huge tracts of agricultural land. These riches have attracted global investors, most notably from emerging market countries such as China, India and Brazil.
Many of these investors have been seeking raw materials for their own economic development and markets for their industries. In return, many African countries have been receiving vitally needed infrastructure such as transport links, power stations, schools and hospitals, which brings into play another great African resource: a huge and youthful population.
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Africa is widely regarded as the cradle of civilization. Building on its storied history as the bedrock for humankind, Africa is also a continent of ample investment opportunity, provided you have the resolve to be in it for the long haul.
My team and I look at Africa as two parts: (1) sub-Saharan Africa where South Africa and Nigeria dominate and (2) the North African markets, where Egypt is the largest. Of course the South African market is much larger and more developed than the other markets in sub-Saharan Africa.
We have been looking at a number of markets on the African continent, several of which have been developing quite rapidly, though they have a long way to go before their potential can be fully realized.
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While it’s still considered an emerging economy, there’s no doubt China has held a good deal of influence over the global markets. Analysts and economists seem to wait with bated breath for any piece of data that confirms or denies whether the country—regarded by many as a global growth engine—is set to keep on humming or if it has begun to sputter. I’ve said many times that my long-term outlook for China remains positive, but it is true that this year we have seen some evidence of slowing in areas of China’s economy such as manufacturing, housing and exports. So the question on everybody’s mind is: Will China have a soft or hard landing?
My view is: China may not be landing at all. How can we talk about a hard or even a soft landing when growth in China is expected to be 7.5% in 2012?1 A hard landing typically is viewed as a rapid slide into recession. I don’t see that happening here. A soft landing would be considered a decline in growth to 2% or 3% which again, is not in the cards. Some economists have used the hard and soft landing terms without defining what they mean. The World Bank seems to define a gradual slowing of growth as “soft landing”2 but a decline of growth from 8% to 7%, or from 10% to 8%, does not seem like a “landing” at all.
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