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The incredible transformation of South Korea to an economic powerhouse is significantly linked to the growth of its large chaebols or conglomerates. Having reinvented themselves, the chaebols remain formidable global corporations even today.
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Marouf Suleiman al-Bakhit
Due to anger among Jordanians over a rise in fuel and food prices, and poor political reforms, King Abdullah II has replaced his Prime Minister with Dr. Marouf Suleiman al-Bakhit.
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Middle East turmoil not yet a significant threat to the global economy
The political unrest spreading across the Middle East and the resultant disruptions to the regional economy are not considered very significant for the global economic prospects for this year. Though oil prices have reacted on fears of lower supplies from the region, there have been no actual disruptions so far and any perceptible deceleration in global economic growth is expected only if prices shoot up further. It is widely believed that, unless the agitations spread to the region's major oil producers like Saudi Arabia, the prospect of a sustained upsurge in energy prices is limited.
Global equity prices trended higher in February, but the emerging markets underperformed the developed markets by a wide margin for the second successive month. Global trade expanded more than 15% in 2010, allowing merchandise trade volumes to regain the pre-recession level by December. Global factory activity gained pace in February, helped by significant gains in Australia, Germany and Japan. Central banks in select emerging countries like China and Brazil again hiked interest rates and tightened reserve requirements for commercial banks, while the developed economies continue to hold their policy rates.
Rising inflation in fast growing economies remains biggest risk to global growth
While energy prices still remain well below their previous record even after the latest spurt, other important industrial commodities like iron ore and copper have never been costlier. If commodity prices remain high as expected, inflationary risks in the fast growing emerging economies will likely worsen and force additional policy measures which are restrictive for growth. In addition, there is no respite yet from soaring food prices, which again affect the less-developed economies more. If further policy tightening and reduced disposable incomes restrict domestic consumption growth in these economies, aggregate global growth rate may turn slower than currently forecasted. In the developed economies too, costlier fuel and food will gradually eat into household budgets. However, the negative impact on consumption may be relatively smaller than in the past, as the developed economies in particular have become more energy efficient in recent years.
Record iron ore prices boost miners, but outlook for the healthcare sector remains clouded
For the mining industry, record high iron ore prices will likely provide the growth momentum this year. Spot prices for Australian ore are nearing $200 a ton, as compared to the $60 a ton fetched until early 2010 under negotiated annual supply contracts, which have since been discontinued. Demand growth remains robust, especially from China, while supply constraints have limited the availability of iron ore in the international market. No new major mining projects are due for completion in the short-term, which will likely restrict the growth in supplies. Remarkably healthy cash flows have encouraged the large mining groups to increase share buy-backs and dividend payouts.
The renewed uncertainties over the success of U.S. healthcare reform, and the steadily declining productivity in research for new drugs, continue to cloud the outlook for the healthcare industry. Opposition from several states and mounting legal challenges to the U.S. federal healthcare reform package will likely make its implementation difficult. For the pharmaceutical manufacturers, new drug discoveries are proving more elusive even as research costs and the threat from cheaper generic drugs swell. To maintain growth, some of the large drug manufacturers are actively looking for acquisition opportunities in faster growing market segments like biopharmaceuticals.
The strong growth in global merchandise trade volumes continues to favor the outlook for the shipping industry. Though capacity expansion in the industry may outpace demand growth in the near term, the large shipping companies remain positive about long-term growth, as evidenced by the exceptionally large orders for new ships recently. Expanding trade relations of Asian countries like China with new trading partners in Latin America and Africa are expected to provide sustained growth opportunities for the industry.
What could be more interesting than investing during the rapidly changing age we are blessed to live in? The next 50 years will see an explosion of change occurring at a progressively faster rate. Major breakthroughs in technology and medicine will no doubt have affects on society equally as powerful as today's Internet is having on globalization.
At Thomas White, we believe that once investors understand that globalization is a positive force, they will also see the advantages of adding international equities to their portfolios. Multinational corporations have been using this global strategy for years; why shouldn't investors do the same?
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