The emerging v submerging economies
Financial advisers need to take the news with a grain of salt if they want to achieve the best results for their clients, according to a well-known international market commentator.
Tuesday, May 15th 2012, 6:48AM
Jonathan Pain, author of investment newsletter The Pain Report, is a speaker at the upcoming Perfecting Investment Portfolios event in Auckland.
He told Good Returns he would be discussing the changing face of the world's economy and how the "Western-centric" media are failing to report this transformation.
"My thesis for some time has described the world as being witness to a new reality - the story is that the world is increasingly divergent between the nations that are submerging and those are emerging," he said.
The submerging nations are those developed countries that are drowning in debt.
In 2009 Pain pointed to the dangerously high sovereign debt levels in the US, the UK, Greece, Portugal, Spain and Italy, and since then three of those countries have had bailouts, while it "looks likely Spain might be heading in that direction."
These countries are grappling with ageing populations, bloated bureaucracies and expensive welfare states, but Pain noted that all the submerging nations added together only equal about 10% of the world's population.
Meanwhile, countries with young populations and rapidly-growing economies such as Indonesia offer excellent investment opportunities due to their expanding middle classes.
However, Indonesia only ever makes the news is there's "a bomb, an earthquake or a tsunami", Pain said.
"When speaking in Australia [Indonesia's neighbour] I ask the audience to raise their hand if they have read one positive story in the newspaper about Indonesia. I've spoken to thousands of people and not a single person has raised their hand."
Pain also advised caution around the big international market indexes, which tend to be concentrated in "submerging" nations.
"I call the MSCI the ‘mainly submerging country index,'" he said.
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