Profit from trade flow reversal

By Vikram Barhat | December 5, 2011 | Last updated on December 5, 2011
2 min read

The recent hammering of the global financial markets, fears of recession and unprecedented deleveraging have heralded a changing of the guard as investment focus moves away from the consumer and into the businesses sector.

“Governments in the developed world are struggling to rein in debt, while consumers have also embraced deleveraging,” says Benjamin Tal, deputy chief economist at CIBC.

“The only thing that will be moving in the U.S. economy, and to some extent in the Canadian economy, is the business sector,” he said. “We see business investment rising very rapidly. I see mix of economic growth away from leveraged consumption towards business investment expansion and that’s a good thing.”

This trend would result in fundamentally stronger economies in exchange for faster growth, he added. “If you replace 80% of the economy, namely the government and the consumer, with only 20% of the economy, namely businesses, clearly the economy will be slower and that’s exactly what we’re seeing.”

Tal says the emergence of a new and healthier mix of economic growth is the most important derivative of the Great Recession. The new mix of economy—80% businesses and 20% consumer—is the way forward and “that’s where investments should go.”

The U.S. manufacturing sector in particular offers some of the biggest opportunities, he says. “I will be looking at the manufacturing sectors in the U.S. and Canada, but mainly in the U.S. because there’s an ongoing renaissance in the U.S. manufacturing sector.”

Manufacturers in the U.S. are gearing up to meet the demands of a highly “sophisticated, able and willing” Chinese, Brazilian, Indian and Mexican consumers. “The consumers of emerging markets have an extremely high propensity to consume.”

That has major investment implications for Canada where investors can not only go directly to emerging markets, but can “also integrate into the supply chain opportunities that this renaissance in the U.S. manufacturing sector is generating.”

Vikram Barhat