Yet many New Zealand investors are missing out on a growing part of the world sharemarket because they systematically omit China from their consideration, Diversified's investment analyst Norman Stacy says.
"This First World bias arises not from economics, but when global spread is proportional to the total value of only selected sharemarkets. Even among these developed countries, distortion is material," he says in his latest economic and market report.
|
Usual Kiwi allocation |
Country / region |
Economic rank |
|
10.7% |
U.K. |
5.9% |
|
17.8% |
Rest of Europe |
29.3% |
|
9.5% |
Japan |
19.1% |
|
3.1% |
Rest of Asia/Pac. |
3.1% |
|
58.8% |
North America |
42.6% |
"The result is many institutions and investors America-centric. Whilst the United States economy will continue to be vitally important globally, over-emphasis risks missing other opportunities."
Stacy uses material from the International Bank Credit Analyst and the International Monetary Fund to estimate the true relative importance of global regions (see table below).
The calculations are based on the purchasing value of money, rather than volatile, official exchange rates.
"Estimates of relative contribution to global growth between 1995 and 2002 are revealing," he says.
Global Economic Ranking
|
|
Share of Global Economy |
Growth attributable to |
|
USA |
21% |
20% |
|
Euro Union |
20% |
14% |
|
Japan |
7% |
2% |
|
China |
13% |
25% |
|
Other Asia |
10% |
13% |
|
Other Western |
8% |
5% |
|
Rest of World |
21% |
21% |
"The major point is that Asia including China, is already of similar economic size to Europe or USA, and with arguably greater impact on growth. "
He says that Diversified’s model strategies have long recognised the frailty of a Morgan Stanley Capital International world market capitalisation-based approach to global economics, and include emerging markets, Asia specialists and other specialties in a balance to more closely approximate the purchasing power parity adjusted, global spread.
While China looks attractive it is not without risks, Stacy says. "Chief among these is the reliance of a totalitarian regime, to manage and eventually be subsumed by, rampant, market-led growth. Reciprocally, that the levels of growth projected for the United States can be achieved and sustained, is also conjectural.
"Diversified’s strategy models also reflect that global economic risks have diminished, with the emergence of Asia including China, as a global growth driver to supplement the USA.
"Meanwhile Europe’s fragile recovery is gaining legs, and the prospect of synchronous global growth must now be considered the greater probability," he says.
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