China, India continue to shine

As the eurozone crumbles before the eyes of global citizens and U.S. economic growth is slow to none, investors should start to look at emerging markets for comfort. That was one theme of Artio Global Management’s luncheon presentation, Global Economy: Structural Clarity/Policy Uncertainty, on November 8 at the Fairmont Royal York in Toronto.

“The world is not complicated,” said Andrew Barker, senior portfolio manager, international equities, with Artio. “There is an unprecedented structural clarity right now because of the imbalances in the global economy. And we’ve never had so much noise from policy-makers and government on how to deal with these imbalances.”

But those imbalances can’t last forever. A rebalancing is eventually going to happen, said Barker, because consuming countries will run out of the ability to consume.

In the mean time, Artio has shifted its view to emerging markets for investing opportunities. The BRIC nations in aggregate will have a larger percentage of the world GDP than the G7 nations in 20 years, Barker said. This growth, however, will be largely in the domestic parts of the emerging markets, not exports.

He looked at India and China as leading examples. China’s urbanization is a driver, as urban investments in fixed assets and infrastructure will continue. “The domestic story in China is attractive,” he said.

Similarly, India’s infrastructure investment as a percentage of GDP will increase in the next few years, he said. “India needs airports and roads. For India to get the levels of income, you need manufacturing jobs, and you can only have manufacturing if you can shift stuff around.”

As for inflation in China, Barker says it’s not really a worrying story, adding that the country’s growth will be somewhere in the middle. It’s the same with India. Although inflation is a concern, it’s not yet at levels to necessarily be destructive, he said.

Currently, China is a success as a provider of its own capital, with almost equal exports and imports. India is close, but must continue to strive toward that trade balance.

Barker says that investors should set their eyes on China and India because, in the next 10 years, they will comprise 25% of the global economy. However, there’s no need to wait that long, he said. “We should be there now and [invest] in a diversified way.”