DIFC Economic Forum tackles global investment trends

While there are signs that the U.S. economy is entering a period of slowdown, the dynamism of a number of emerging economies is creating alternative engines of growth and stability.

Increasingly, they will serve as both a new source of investment and a balancing force in the world economy.

Mark Mobius opened the discussion by stating that we are in the most glorious period in mankind's history: not only is the generation of wealth unprecedented, but it is more widely distributed than ever before.

With the inevitable ups and downs of the markets, of course, it is "not all roses". Nonetheless, he argued, markets are poised to grow.

By way of contrast, Mobius recalled his experience 20 years earlier as President of Templeton's emerging markets fund. "We raised $100m," he said, "which was big money then. You could invest in Mexico and in 4 countries in Asia. Everywhere else was closed." In 2007, he continued, "my group now manages $40bn. There are 40 markets you can invest in and new ones are opening up all the time - Kazakhstan, Dubai, for example."

Going forward, Mobius predicted that while it appears that the U.S. economy is headed for a downturn, emerging markets are beginning to offer alternative opportunities for growth.

He stated,

"The global economy is no longer dependent only on the United States. A decoupling is taking place...We are in a much better place to weather storms in the market."

China, for example, continues to invest in its infrastructure, the domestic market is huge and growing, and companies are increasingly competitive. "It is becoming," he observed, "an engine for the economic development of the surrounding countries." Already, he noted, Taiwan and Korea export more to China than they do to the U.S., a remarkable fact given that their economies initially developed via exports to the U.S. According to Mobius, these developments could represent the beginning of a trend towards global economic diversity.

Robin Bew noted that south-south investment was on the rise. "When there are challenges," he said, "liquidity is quick to enter markets" in need of funds. In the future, he said, this could mean that the emerging markets will become safer. China, he said, "is picking up the slack left by the slowdown in the U.S."

Jean-Paul Betbeze added that China's unusually high savings rate will transform the world economy. Already, he noted, China was financing the growing levels of indebtedness in the Western countries, but soon its
investors will seek higher returns where it can find them. "China will get greedy," he concluded, "and will not be satisfied with the low returns it can get from [American] Treasury bills. This is an opportunity."

Tetsuro Sugiura agreed that expanding south-south trade was a good sign. "This will make economic recovery more autonomous and spontaneous," he believed. Sugiura noted that the Japanese tended to view India even more favorably than China. "In India, business is slow and it takes lots of time to get approvals from the government," he acknowledged, "but its population is younger than China's, it is a democracy, and there is far more transparency in the economy."

Regarding the national currencies of the Gulf Cooperation Council (GCC), the panelists observed a number of developments. According to Mobius, as "pegged currencies" to the U.S. dollar, there are contradictory forces at work: while the Federal Reserve Bank of the U.S. is lowering interest rates in order to stimulate economic growth, the booming GCC countries are more concerned with inflationary pressures. It is only a matter of time, he predicted, before the GCC countries peg their currencies to a basket of currencies rather than solely to the U.S. dollar.

Philip Koury agreed, noted that because "U.S. monetary policy is not optimal for the GCC," the question of depegging of their currencies has become one of "when" and "not if." Nonetheless, he believed, "depegging the currencies will not be dramatic. It will occur naturally."

Betbeze added that it appears a new era is dawning for sovereign funds, which have grown with the rise in oil prices. In addition to serving as a tool for growth, he noted, "they are becoming engines of stability and will help to avoid financial crises," in the future.

The discussion then turned to Dubai. According to Betbeze, "Dubai is becoming like Venice: it is not the biggest producer, but it will organize other producers." Koury noted the Venice analogy is a good one, but that Dubai must develop further. In Dubai and many GCC countries, he explained, "growth is driven by government spending, private investment, and immigration. This will continue and our companies will become global competitors. But we must develop internally" through education and research.

With confidence and an effort to educate investors, he argued, "you can invest on the basis of value rather than momentum." Dubai, he observed, appears to be taking these steps. "The world belongs to the optimists, not to the pessimists," he concluded.