Last night, I had a chance to chat with Jim O’Neill, Goldman Sachs’ head of global economic research, after a presentation he gave here in London.
His, and therefore Goldman Sachs’, view on the global economy — was surprisingly bullish. All of Goldman Sachs’ projections for economic growth both for 2009 and 2010 were above consensus. Goldman’s own (re)calculation of the OECD’s index of leading economic indicators predicts that the global economy is in a “V” shaped recovery. O’Neill thought that many of the negative numbers coming from economies like the United Kingdom would be revised upward. His most bullish chart showed that German exports to Asia — the biggest in the world — had now not only recovered to pre-crisis levels, but had exceeded them. He was extremely bearish on Japan, even suggesting that the United Kingdom’s economy could overtake Japan’s in 30 years time. As optimistic as he was about the global economy, he didn’t think even the best-intentioned policy makers could do anything to prevent future financial crises. These crises are too much a function of basic human fear and greed.
Having coined the acronym BRIC (Brazil, Russia, India and China) eight years ago, O’Neill was predictably bullish on China. Given how this contrasted with my own views that I expressed in yesterday’s Global Guru, I challenged O’Neill on his optimistic scenario. Haven’t statistics suggested that China is not getting much bang for its investment buck? He stated these statistics were flawed. What about the giant swathes of empty office towers, ghost cities and bridges to nowhere that dot Chinese cityscapes? It is not a misallocation of capital, he declared. The single biggest factor that analysts underestimate in China is “urbanization.” Every empty office building China constructs will soon be teeming with recently re-located peasants from the countryside. O’Neill is clearly in the “if we build it, they will come” school of thought.
While I appreciate O’Neill’s optimism, I also know that no single country has achieved economic growth with a series of boom and busts — and foreign investors getting taken to the cleaners in the process. I am also surprised at his uncritical embrace of Chinese statistics. Perhaps I shouldn’t be. Goldman Sachs criticizing the Chinese government’s statistics wouldn’t be exactly good for its China business. Overall, O’Neill’s positive (and substantiated) outlook for the global economy — and the United States — is a welcome respite from the relentless onslaught of doom-and-gloomers.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) was flat this week, even as U.S. bond giant Pimco believes that Beijing will soon ease its grip on its currency. At the same time, Chinese Premier Wen Jiabao recently called demands for China to allow the yuan to appreciate "unfair." But the issue of revaluation has come alive again. CYB remains a defensive BUY.
Claymore/BNY Mellon BRIC ETF (EEB) pulled back this week, though it is still well within its recent trading range. And if you buy Jim O’Neill’s view of the world, this is the only bet worth making. EEB remains a BUY.
iShares MSCI Taiwan Index Fund (EWT) ended the week flat. The Chinese mainland authority gave approval Tuesday for Taiwan Bank (TB) to establish an office in Shanghai. As a leading bank in Taiwan, the move acts as a milestone in cross-Straits financial cooperation. With Taiwan still off of its high of $13.12, EWT remains a BUY.
SPDR S&P Emerging Markets Small Cap (EWX) pulled back slightly this week. This leveraged bet on emerging markets remains a BUY.
iShares MSCI South Korea Index Fund (EWY) hit a high for the year of $47.10 on Monday, before pulling back slightly. With the relative strength of South Korea improving, EWY remains a BUY.
Freeport-McMoRan Copper & Gold Inc. (FCX) has pulled back sharply on the sell-off in the gold price. With the stock now technically oversold, this would be a good (if daring) time to add to your position. FCX remains a BUY.
Market Vectors Gold Miners ETF (GDX) hit a record last week, before pulling back sharply. Oversold much like FCX above, GDX remains a BUY.
Market Vectors Indonesia ETF (IDX) has held up surprisingly well this past week, indicating that there is strong buying support for this position. IDX remains a BUY.
Market Vectors Russia ETF (RSX) pulled back below the $30 level yesterday. RSX remains a BUY.
SPDR Dow Jones Intl Real Estate (RWX) pulled back sharply this week, as it struggles to break out of its trading range. This play on the global real estate recovery is now a HOLD.
iShares MSCI Turkey Invest Mkt Index (TUR) closed the week higher as this volatile market proved surprisingly resilient. TUR is a BUY.
Chemical & Mining Co. of Chile Inc. (SQM) ended the week slightly higher, even as it paid out a 38-cent dividend on Dec. 8. SQM remains a BUY.
P.S. With the help of global financial stimulus, a number of global markets have rallied from their lows of 2008, providing investors who were invested in the right markets at the right time with healthy returns. Although the question remains — how do you become one of those investors? For an answer, I encourage you to attend The World MoneyShow in Orlando, February 3-6, 2010, at The Gaylord Palms Hotel and Convention Center, to hear more than 60 leading experts. They will be on hand to provide you with insights and recommendations to help you identify emerging opportunities around the globe. I hope that you will join me there! Visit The World MoneyShow Orlando to register FREE today!
P.P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.
