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Global Economic Growth Trends, Asia and Brazil

Economics / Emerging Markets Oct 21, 2009 - 03:03 PM GMT

By: Hans_Wagner

Economics

Best Financial Markets Analysis ArticleIn the last year, many analysts and investors have focused on China as the driver for global economic recovery. Actually, there are countries other than China that are experiencing significant economic growth, contributing to the global recovery. Many Asian countries and a few in South America are showing the world the way. The growth of these countries offers important export opportunities for the U.S.


In 2000, foreign business amounted to about 30% of the revenue for the S&P 500. Now it is up to approximately 50%. Within the S&P 500, this trend is even more noticeable as many technology, materials, energy, and industrials generate more than 60% of their revenues internationally. Companies such as FreePort McMoran, Accenture, Cisco, EMC, Microsoft, IBM, Chevron, Boeing, Caterpillar, Joy Global, Flowserve and even Apple are seeing the affect of this global growth trend.

China

Depending on whom you believe China’s growth in the third quarter of 2009 will come in from 8.5 to 9.5%. This is up from 7.9 percent in the second quarter and 7.1 percent for the first half of 2009. The Asian development Bank projects China’s growth at 9.5 to 9 percent. Goldman Sachs expects growth to come in closer to 9.5 percent. China is growing rapidly and the country has returned to the levels it reached before the global recession.

There are other signs that China continues to grow. According to China National Energy Administration, China's power consumption in September also continued to rise at a faster rate. Power consumption rose 10.24 percent from the same month last year to 322.41 billion kilowatt hours last month. The General Administration of Customs, China's foreign trade continued to fall in September, but the rate of decline slowed. The total value of imports and exports for September was 218.94 billion U.S. dollars, down 10.1 percent from the same month last year, but up 14.2 percent from August.

We know that China uses different ways to measure their economic performance, to these numbers do not necessarily translate into equivalent measures in other countries. However, the fact that China is growing rapidly cannot be ignored.

India and Rest of Asia

India is another rapid growth story. Growth in gross domestic product rose to 6.1 percent from a year earlier in the April-June quarter up from 5.8 percent in the previous quarter according to the government's Central Statistical Organisation. India is not nearly as dependent on exports as China, which helps the country to weather the global economic troubles. The biggest current threat for India is the lack of rain for their agriculture sector.

A drought will negatively affect the economy over the next half year, as declining agricultural output reduces demand for transportation and storage. This will hinder exports and domestic trade while lowering the income for hundreds of millions of Indians who rely on farming for their livelihoods. Agriculture accounted for 6.3 percent of India's GDP from April-June. The problem is 65 percent of the population depend on farming as their main source of income, according to Citigroup.

Monsoon rains from June 1 through August 19 are 26 percent below normal, according to the Ministry of Agriculture, and a drought has been declared in at least 44 percent of India's districts. Growth of agriculture and related industries slowed to 2.4 percent during the April-June quarter, down from 3.0 percent that same period last year, the Central Statistical Organization said.

Longer term India will continue to expand in the mid to high single digit rates as they take advantage of their growing pool of educated workers. Much like China, this growth is creating a large and expaning middle class that wants a better life.

Other Asian countries are experiencing economic growth as well. Australia raised their key lending rate to help address the prospect of inflation as their economy expands. Indonesia has maintained positive economic growth throughout the global recession. This is going unnoticed as most analysts focus on the other countries in Asia. Each of these countries offers opportunities for the U.S. export business.

Brazil

South America with Brazil leading the way is another source of global economic growth. While winning the 2016 summer Olympics is in the headlines, Brazil is experiencing a continuation of its economic resurgence. Exports of commodities to China are the primary driver. However, the country’s manufacturing sector is recovering as well. As a leading producer of ethanol, Brazil can become an energy exporter, exploiting the growing interest in biofuels. When its oil wells come online, they can translate much more quickly into exports and revenue generation. If Brazil follows through on plans to construct a petrochemical industry around its oil extraction, the country will find itself with a value-added industry that will further contribute to its development.

The Bottom Line

Each of these countries cannot on their own be the driver for export growth for the U.S. Combined they offer good prospects, especially if the value of the U.S. dollar remains weak.

Investors that focus only on the U.S. will miss the underlying affect of the global growth story. Under estimating the strength of this global trend on the profits of companies will be a mistake.

Rather than look to the U.S. as the source for growth, we need to identify companies that receive more than half of their revenues from foreign sources, as they offer the best opportunities. We will see further separation of many companies from dependence on the U.S. economy, especially retail sales.

Companies that are aligned with the growth of the global economy will see stronger earnings that should continue to grow for years to come. Multi-nationals as well as small and mid size firms who are aligned with the global growth trends will benefit. Whereas companies that remain focused on the domestic U.S. markets and depend on U.S. GDP growth will suffer.

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/

Copyright © 2009 Hans Wagner

Hans Wagner Archive

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