Asia has long been the global economy’s best hope. Its relative growth prospects are undoubted: in a liberalising world, why should three-fifths of the planet’s population not one day produce a similar proportion of its output?
In investment terms, things look a little more nuanced. If anything, Asia has disappointed: its stock markets have lagged the West’s over the last two decades, even when their stronger currencies are added in. This is partly because of Japan, and the early 90s starting point, but emerging Asia has disappointed since 2007, particularly China.
In the developed world, received wisdom has the US economy permanently on the brink of a renewed recession, and Europe (including the UK) engulfed in one. With both regions likely to have grown in Q2, and business surveys pointing to a slightly stronger H2, western sighs of relief contrast with growth disappointments, and portfolio outflows, in much of emerging Asia.
More fundamentally, GDP is not the only thing that matters to investors. China’s GDP has led the US by 7-8 percentage points per annum in the last decade or two, but it has not shown up in corporate earnings. Some question the integrity of the data itself. Local economists do seem uncannily accurate in forecasting monthly retail sales and capital spending growth.
It is also important to remember that many Western companies are active globally. Western companies top the table of China’s car producers. Companies do not have to trade directly with Asia to benefit from its growth, the resources sector being a case in point.
Competition itself is also caricatured. Economists place far too much emphasis on exchange rates, but cheapness is neither necessary nor sufficient to succeed in business. Germany doesn’t succeed because it sells cheap cars or machine tools. Conversely, if Greece doesn’t have much to sell, a cheap new drachma wouldn’t be much help.
We do like emerging markets longer-term, and Asia is our favourite region. But don’t write-off the West. Tactically we like it: low and mistaken expectations are easier to beat.
:: Andrew Miller is a director of Barclays Wealth and Investment Management in Newcastle