RSS FeedBy M. Isi Eromosele
After the recent global financial upheavals, it is now apparent that the structure of the world’s economic growth definitely needs revision. There is a huge realignment currently going on in the global economy, which is highlighting the new economic prominence of emerging economies, displacing the former overriding influence of developed nations.
With the advent of emerging nations on the world economic stage, there is now a trend towards what could be called a more balanced growth with greater than before export opportunities for such countries as the United States, Germany and Japan.
Conversely, developed economies in the United States, Europe and Asia will offer return opportunities to the emerging nations. Inherently, the attainment of this balanced growth opens up investment opportunities for both sides.
Emerging market nations have clearly established the capability to achieve much faster economic growth than their counterparts in the developed world. This trend is expected to carry on for many years, giving emerging economies a deserved presence in the global equity portfolio.
The prominence of the emerging markets is further enlarged when one looks at the economies on both sides and discovers that on a purchasing power parity basis, the emerging economies are now ahead of the developed ones.
As such, with the changing dynamics of global economic growth, investors should be exposed to broad investment opportunities in international markets.
At Oseme Finance, our research has shown that the portfolios of most investors are not well positioned for the new dynamics in global economic growth.
This is because investors tend to have a home bias towards their respective countries, opting to have a much larger part of their investments in domestic assets, reducing their ability to benefit from full investments in foreign markets. For example, Japanese pension funds hold approximately 60 percent of their equities in domestic stocks and two thirds of U.S. equity exposure is in U.S. stocks.
The perceived advantage of concentrating one’s investment in the home country is increasingly being made redundant by the global liberalization of capital markets and seamless trading between nations.
For example, the best investment returns will come to those investors who can base their choice between Exxon and BP on the fundamental outlook and valuation levels of the two companies, not on the location of their respective headquarters.
Greater exposure to more globalized countries increases the chances that a portfolio will be more profitable due to global growth.
Changing opportunities do exist for global investors. This is primarily due to the advent of emerging economies and the key role they are now playing in global economic growth.
There is clearly a connection between economic growth and stock market returns. A stronger-than-average growth outlook for the global economy will lead to above average market returns if the growth is accompanied by sound fiscal policies.
Investors do have a fiduciary responsibility to utilize a combination of good basic research to obtain the necessary information about a country or industry they plan to invest in. Utilizing a diversified investment strategy, they can then manage risks by making sure that no one holding is given overwhelming prominence within their portfolio.
M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
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