Emerging markets will outperform the USA markets in 2010 (per SeekingAlpha article)
2010:Emerging Markets To Beat Developed Markets Despite Domestic Challenges
LINK to article
Dec 30, 2009 10:09 AM After researching GDP data of key emerging and developing nations extensively, it is clear that in 2010, investment in emerging markets will give higher returns on deployed capital compared to that of developed countries. Overall world GDP growth in 2009 would be negative at -1.31%(Table 1),but due to government intervention through stimulus packages in form of offered subsidies for key industries and expansionary monitory policy led to sharp rebound in market and consequently investor’s confidence. Overall expected growth in emerging countries looks solid but investors are still nervous about the shape of current recovery (V vs. W shape)
Table 1: GDP Data (Source IMF, WhiteMonk Research Team)
Now let us look closely at how contribution of GDP of key Emerging Countries’to world GDP will change in 2010 and beyond. In 2007, other emerging countries and Africa contributed 33% to world GDP and by 2014 it will increase to 43%. (Table 2) Wise Investors will be well positioned to take advantage only if they can identify key industries/sector in Emerging Markets, which will be growing faster than rest’s.
Table 2: GDP Percentage Contribution of key world market
US recession has ended sometime in July/August as indicated by positive improvement such as labor market, industrial production and leading indicators such as purchasing orders.The driving impulse behind the impressive growth figures is inventory rebuilding. Furthermore stimulus efforts on both the monetary and fiscal fronts will continue well into 2010.We believe that present recovery in US is because of increased government consumption and investments by private domestic firms.(Table 3)
Table 3: US GDP (Source: BEA)
The above information is further validated if we analyze corporate profit in recent quarter. Most of the firms after posting big losses now see light at the end of tunnel.(Table 4)
Table 4: Corporate Profits by Industry-Change from preceding period (Source: BEA)
We believe that still process of de-leveraging is delayed by Key Financial Institutions and Fed; it is in fact still far from over. The increasing household saving rate in US and fluctuating unemployment may hamper revenue growth of key business players going forward. We still believe that there is a strong probability of a second recession when magic of stimulus package disappear!