Why we believe that you need to be a medium-term market timer, to do well in all markets. A lesson from history http://puzzlefinancialadvice.com.au/2021/Core/Static_Asset_Allocation_long_term_buy_and_hold_strategies_often_fail_Why_is_that_210202.pdf
Puzzle Financial Advice
Jeremy Grantham 27/2/2012 "Believe in history. History repeats. All bubbles break. Be patient and focus on the long-term. Wait for the good cards."
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Biggest emergence event in history is NOW.
There have been 3 major emergence events in the world over the last 200 years.
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Between 1870 and 1896, the USA with 38 million Americans, became a developed economy.
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In the 20 years from 1950, 83million Japanese emerged.
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Currently, we have 3.5billion Indians, Chinese and others in the emerging world are emerging from comparative poverty into middle class living.
This emergence has a number of major impacts:
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Convergence of wage prices.
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Over the next few decades, we are like to see wages in the developed world, fall relatively compared to the developing world - and this is likely to result in a comparative fall in real living standards for most in the developed world in real terms. This is also therefore likely to see a comparative fall in real profit levels available to companies operating in the developed world, compared to the developing world - and as a result, the investment opportunity (opportunity to benefit from rising profit) in the developing world is growing compared to the developed world.
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The economic and military power of the West is declining as that power increases in the East.
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This really approximates a reversion to comparatively economic power 600 years ago.
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Impact on investments: Investment opportunities in the East (eg Asia) are increasing for investors, so more of your investments should probably be there.
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Some key quotes:
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Kerr Neilson (possibly Australia's most successful fund manager ever) 17/10/2017 'Asia is "one of the great paths of wealth creation over the coming 10 to 20 years.'
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Jon Pain 30/March/2018. ''I think it was back in 2003 that I first said that “the most significant and defining economic phenomenon of our lifetime, perhaps any time, is the rise of the Asian middle classes.They will shape and define the topography of the global economic landscape for many, many decades to come.” I have delivered that line at every speech I have delivered since that time.'
Some discussion:
Foreign Policy White Paper highlights Chinas growing domination
December 10, 2017
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'The White Paper has been praised for acknowledging that China's power and influence are growing, and that America is having doubts about how to respond. But it goes nowhere near recognising just how far these trends have already gone, and where they are heading. In fact it evades them on four key issues.
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First, the text is silent on the implications of a graph, presented in the White Paper itself, showing Treasury estimates that just 13 years from now China's economy will be close to double the size of America's – $42 trillion to $24 trillion. It does not comment on what these remarkable numbers mean for the shift in power between Washington and Beijing, and hence for America's future role in Asia. And yet the implications are fundamental, and revolutionary. It reflects by far the biggest shift in the distribution of wealth and power in Asia since Australia was settled by Britain in 1788.
Moire details here: https://www.puzzlefinancialadvice.com/single-post/2017/12/04/Foreign-policy-white-paper-grossly-under-estimates-China
Asia one of the greatest paths of wealth creation over next 10-20 years - Kerr Neilson
November 08, 2017
Brilliant article by Kerr Neilson: https://www.platinum.com.au/journal/views/the-rise-of-asia/
Kerr's bottom line comment says it all:
"The purpose of this paper is to try to convince you to see Asia from a new perspective. Without doing so, you may well miss one of the great paths of wealth creation over the coming 10 to 20 years."
USA in decline, China in ascendancy - Niall Ferguson
October 29, 2017
An emperor who is a dotard. A population in the grip of opium addiction. An economy held back by bureaucracy and crumbling infrastructure. A culture fixated on past greatness but in fact hopelessly decadent. This was how Westerners in the 18th and 19th centuries regarded China. It is how the Chinese (not to mention most Europeans) now regard the United States.
Trumpery, the opioid epidemic, the administrative state, storm-ravaged cities, and the fantasy of making America great again — this is how the United States appears whether you watch CCTV (Chinese state television) or the BBC. Compare and contrast with the way China is portrayed nowadays in most Western media.
Biggest investment opportunities in the largest part of world economy growing fastest!
October 25, 2016
Where do you think the biggest investment opportunities are for the next 5, 10 and 20 years? Is it:
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in the largest part of the world economy, which is growing fastest? (The Emerging Economies) OR
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in the subsiding economies - those whose days of glory are being eclipsed?
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http://www.livemint.com/Opinion/ck1EMSGaPQvksrMeC45QsI/Advanced-economies-vs-emerging-markets.html
Even better, as a broad generalisation, shares are trading far more cheaply in the emerging world, than in the developed world. For example, in a 12th December 2017 presentation, Clay Smolinski (portfolio manager at Platinum Asset Management) said:
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"Many Chinese companies trade on large discounts to peers, and it is largely ignored by most fund managers as China is only 3% of their index."
This comparative cheapness of the emerging world, also can be seen by looking at the comparative cyclically-adjusted P/E ratios.
China and India's share of Global GDP is simply reverting to what it was for most of last 2000 years
The comparative decline of the West 1980-2060, 13/Feb/2017
Since about 2000, the majority of global economic growth has been occurring in the Emerging World. We are seeing a comparative decline in the West - and if anything, that comparative decline seems likely to accelerate over the next couple of decades. The following chart illustrates this very clearly. For those of you who have not come across the Next-11, you might wish to refer to this web site. https://en.wikipedia.org/wiki/Next_Eleven
Country rankings by GDP in PPP terms by 2060 - PwC - Jan/2017
“China poised to pass US as world’s leading economic power this year” 30/4/14
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Comparison of sizes of economies on a Purchasing Power Parity (PPP) basis.
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Indonesia is already bigger than Australia on PPP basis.
By 2050, Australiaa might drop out of the G30 - in PPP terms. Feb/2015
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http://www.pwc.com.au/media-centre/2015/world-in-2050-feb15.htm
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http://www.pwc.com.au/consulting/publications/world-in-2050.htm
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http://www.pwc.com/gx/en/issues/the-economy/assets/world-in-2050-summary-report-february-2015.pdf
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Just take a look at which countries are going to over-take Australia over the next decade or two.
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Australia's comparative importance in the world is expected to rapidly shrink.
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Our economic, international relations, military considerations need to take this into account.
Asia - the investor safehaven - Jon Pain
November 03, 2014
Jon Pain's Pain Report. November 2014
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“exciting times ahead for investors in Asia”
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“I know the majority of you just cannot accept the notion that Asia could somehow be some kind of safe haven as the western prism through which you view the world has ’hard-wired’ you to reject such a preposterous proposition.”
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On the 2014 share market volatility:
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“Interesting to note, however, that my three favoured markets, China, India and Indonesia were far less volatile than their counterparts in America or Europe”.
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"Some of you may recall that I turned positive on the Japanese stock market in December 2012, due to my expectation that the BOJ (Bank of Japan) would launch a turbo-charged monetary policy. Please see my report 14th December 2012, 'The Rubber Meets the Road.' Through 2013, the Nikkei rose a stunning 57% ..... In short, the 'technical' picture in Japan looks very promising. ....... In all my speeches over the last 2 years, I have said that the 'times they are a changing' in Japan and that we would see a massmigration from bonds to equities. The first wave was undoubtedly led by foreign investors, particularly hedge funds, that had teh foresight to recognise a massive opportunity when they saw it. This time we could see both foreign and domestic investors returning to the Japanese stock market."
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All of this supports the story I have been telling this year, hence, of course, why I am repeating it here, that 2014 will be a year of volatility in the west and opportunity in the east.
Jon Pain has also contrasted investing in the submerging world (Western developed world) vs the emerging world.
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http://slideplayer.com/slide/6972179/
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'Submerging versus emerging Submerging nations will spend less and save more Emerging nations will spend more and save less Yes, it is as simple as that'
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'"The Mother of All Crossroads?"....2006 “ As we look to the West we see an economic giant that is in the first phase of a painful decline. As we look to the East we see a phenomenon that will shape and define our lives for decades to come.” 2008 was a defining moment in time which accelerated the inevitable.
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http://www.successfulspeakers.com.au/jonathan-pain
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In 2009 he said that we all faced a ‘New Reality’ and that the world was divided between those nations that were submerging and those that were emerging.
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Over the last several years, he has repeatedly said that the most significant and defining economic phenomenon of our lifetime is the rise of the Asian middle classes.
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The combined output of China and India to exceed G7 early next decade - Asia Century White Paper
October 2012
The developing world already accounts for 70% of world trade - Marc Faber AFR 28/10/16
PwC GDP projections in PPP terms
January 08, 2017
PwC (Price Waterhouse Coopers) estimate that by 2060 in Purchasing Power Parity Terms:-
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the combined GDP of China and India will be 3.7 times the USA,
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of the Western developed world, only USA and Germany will be in the top 10 economies.
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Australia will be ranked 29 AND
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Indonesia will be 6 times bigger than the Australian economy.
Can you imagine how different that world will feel compared to today?
PPP projected GDPs here https://en.wikipedia.org/wiki/List_of_countries_by_past_and_projected_GDP_(PPP)
Nominal projected GDPs here https://en.wikipedia.org/wiki/List_of_countries_by_past_and_projected_GDP_(nominal)
Asian Century White Paper - Asia is 60% of global growth
November 05, 2012
Asia now accounts for 60% of global growth.... as it rapidly eclipses the economic power of the Western developed world.
"Emerging stocks offer better returns and less risk" Burton Malkiel - Professor Emeritus of Economics at Princeton University
September 18, 2011
Burton Malkiel argues in the Financial Times:
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"Investment allocation among different asset classes and national markets is the major determinant of a portfolio’s return. While correlations have increased between different national markets, there have been vast differences in the performance of those markets. In the years ahead, three important factors are likely to have a large impact on the performance of the stock markets in different countries. These are: the debt levels of both governmental and private units which will play an important role in the ability of different economies to sustain growth; demographic trends which will have a strong influence on the ability of a national economy to generate non-inflationary growth; and the end of cheap, abundant resources which will cause an increase in their value and favour economies of nations relatively rich in those resources. Investment policy has paid too little attention to these crucially important long-run trends."
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"Let’s look at debt first.
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the G20 advanced economies had a debt-to-gross domestic product ratio of more than 100 per cent in 2010. By 2015, that percentage is projected to rise to 125 per cent. And these debt burdens represent only the tip of the iceberg.
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In contrast, public debt levels are less than one -third of GDP in emerging markets and are projected to decline to only one-quarter by 2015.
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Moreover, unfunded liabilities there are tiny compared with the developed world, and household balance sheets are healthy. Please use the sharing tools found via the email icon at the top of articles. Debt at the levels currently existing in the world’s developed economies has historically been associated with lower long-run capital accumulation, poorer productivity growth, and lower levels of real economic growth. Debt levels also constrain the flexibility of fiscal policy and risk a full-scale economic crisis.
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Demographics also favour emerging markets.
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Demographers use a simple statistic – the dependency ratio – to measure the youthfulness of a country’s population. The ratio of retirees to workers is rising sharply in the developed world.
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Yet in Brazil and in Southeast Asia, dependency ratios will remain low. In India, dependency ratios will actually fall over the next two decades. Even in China, with its one-child policy, the ratio of retirees to the working age population will be less than 30 per cent in 2025.
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Finally, the world is using up its natural resources at an alarming rate.
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Our supplies of hydrocarbons, metals, land, and water are finite. It is very probable that in the long-run the (inflation-adjusted) prices of commodities will rise. This creates excellent long-term investment opportunities in companies and countries with abundant natural resources – not only oil and metals, but also arable land and abundant water.he period of abundant natural resources and falling prices is over.
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I believe an examination of most portfolios would indicate that they are severely underweighted to the most dynamic growth economies of the world."
https://www.ft.com/content/63e7f430-bd3b-11e0-9d5d-00144feabdc0
https://en.wikipedia.org/wiki/Burton_Malkiel
https://dof.princeton.edu/about/clerk-faculty/emeritus/burton-gordon-malkiel