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China not the world's panacea: Magellan

China is not the panacea to the meltdown of financial markets over the past 18 months, though emerging markets are still the growth areas for investors.

Thursday, November 26th 2009, 6:46AM

by Paul McBeth

Magellan Asset Management chief exececutive Hamish Douglas told advisers at a roadshow in Wellington that China's economy is too small to lead the world out of recovery on its own, and that they should not pile into the world's fourth largest economy for the sake of it.

"China's not large enough to overcome the huge issues facing North America, Eruope and Japan," Douglas said. "I don't think people understand the simple mathematics very well."

Still, Douglas said there is no doubt that emerging markets are the next growth area and investors need to take advantage of the massive urbanisation that is underway, though they can do so by investing in companies with exposure to emerging markets, such as Proctor & Gamble.

"The major theme will be emerging markets over the next 20 years as urbanisation is the major driver of economic growth in places like India and China," he said. "If people just invest in China for the next 10 years if could be a difficult experience."

Douglas is less optimistic about the pace of the wider global recovery, saying when the "tsunami of stimulus" is withdrawn economies in developed nations will begin to level out and he expects growth to flatten out, rather than spike back up as it similar recessions in the past.

"In Australia and New Zealand, we may get more of a V-shaped recovery as we haven't had the same depths" as North America or Europe, he said.

 

Paul is a staff writer for Good Returns based in Wellington.

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