China's fast-paced consumption to cause equity shift
By SCOTT BURNS
Universal Press Syndicate
Nov. 11, 2003, 1:33AM
chron.com
NEW ORLEANS -- At the end of his tour de force presentation, the audience rose and gave Marc Faber a standing ovation. Speaking at the 30th New Orleans Investment Conference, Faber gave a quick, Swiss-accented march through a collection of more than 40 economic graphs and drew a detailed picture of "a post-bubble environment."
And what was his broad message?
Say goodbye to ephemeralization. Say hello to a boom in commodity prices. Say hello to the century of China. Change your investments accordingly.
"The beauty of the bubble is the undervaluation it will create somewhere else," he said. All the money that supports bubble prices comes from other areas that tend to become undervalued.
Comparing contemporary China to the United States in the mid-19th century, he says the completion of the American rail and canal system brought decades of deflation -- declining prices wrought by our ability to move food, goods and materials at low cost from anywhere in the country. Now, he says, China's entry into the world market will have a similar impact on the price of goods -- years or decades of declining prices. The entry of India into the world market, he says, "will have the same impact on services."
This is happening at incredible speed. It took Great Britain nearly 60 years to double per capita income during its industrial revolution from 1780 to 1838. It took Japan more than 30 years to accomplish the same thing from 1885 to 1919. But China is doubling its per capita income every 10 years. As it expands its production, it is increasing its circle of interest in the Pacific, becoming the major consumer of goods and raw materials from the region.
Skeptics should check the stock exchange booms in countries that have commodity-based economies. While the iShares Russell 3000 index exchange-traded fund -- which captures 98 percent of all market capitalization in America -- is up about 21 percent year-to-date, the iShares MSCI Australia Index is up 39.9 percent. The iShares MSCI Canada Index is up 40 percent in the same period. Australia and Canada are considered commodity-based economies.
One particularly striking example: oil. If the growth of China continues on its current path, it will need additional oil equal to the "total current output of Iraq, Kuwait and Qatar," Faber says. If China grows as the United States did in the first half of the 20th century, its new oil consumption would require "83 percent of total current oil output" by 2015. Message: Enjoy your low-priced gasoline while you've got it.
The size and growth of China are so great, Faber says, that we are not far from having world attention focused on housing starts and retail sales in China as a measure of the world economy.
All of this means rising commodity prices, falling bond prices and a shift in global market capitalization. The United States accounts for 53 percent of world equity values, and Asia (excluding Japan's 8.7 percent) accounts for only 3.4 percent. He sees the United States with 25 percent to 30 percent of the total in the future, while Asia has 30 percent or more.
How does such a big shift happen?
...
We'll be saying goodbye to hegemony before we learn how to pronounce it. |
