Investing in the future

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The emerging global wealth megatrend – one of five identified by BlackRock – is spreading from China to other Asian emerging markets following big shifts in trade.

Emerging global wealth is one of five trends identified by the asset manager in a new white paper entitled Megatrends – the forces shaping out future.

The others are technological breakthrough, climate change and resource scarcity, demographics and social change and rapid urbanisation. The asset manager says these trends are bringing structural economic change and informing its investment thinking.

They also reinforce each other. India, for example, is set to overtake China as the world’s most populous country in the next four years.

The report suggests that genuine reform can unlock potential in India, which benefits from an expanding labour pool with the working age population is set to grow by almost 14% by 2030 compared to a -3% decline for China.

The report adds: “As cost inflation in China pushes manufacturing jobs elsewhere, neighbouring southeast Asian economies are benefiting for example, Vietnam and Bangladesh.

“Another advantage for emerging markets is the ability to lead from advanced economies and adopt cheaper and better technologies to boost productivity (e.g. clean energy, communication). For instance, Mexico’s mobile penetration is at 90% while fixed-line penetration has plateaued at 16%.”

However, China remains a powerhouse following two decades of unprecedented growth, which has lifted per capita GDP from a meagre 8% of US per capita GDP in 2000 to roughly 30% this year.

The white paper says that this rapid growth has been enabled by significant infrastructure investments, support for an export-focused manufacturing base and increased spending on innovation.

In turn, this has resulted in persistent growth in household incomes. The World Bank notes that China alone is in the midst of adding one billion people to the global middle class up to the year 2030.

The paper says that it is not surprising that China has been a key source of growth for companies exposed to Chinese consumers including luxury brands, autos, smartphones.

The report also suggests that a new breed of Chinese company is increasingly capturing market share at home and venturing overseas.

“This is a natural progression of an economy that has been steadily moving up the value curve in infrastructure, manufacturing and technology sectors.”

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