A New World Order

In March/April 2011, Ian Bremmer hypothesised that this is not a G-20 world. He states that .. " the expanded group of leading economies has gone from a would-be concert of nations to a cacophony of competing voices as the urgency of the financial crisis has waned and the diversity of political and economic values within the group has asserted itself."

Bremmer talks of a G-0 World, one in which no single country or bloc of countries has the political and economic leverage - or the will - to drive a truly international agenda.

[Ian Bremmer is an American political scientist specializing in US foreign policy, states in transition, and global political risk. He is the president and founder of Eurasia Group, a leading global political risk, research and consulting firm, and a professor at Columbia University].

Just last week it was announced the the UK is now in a double-dip recession and in the same week, Spain suffered a similar fate. In Spain, 16 Banks were downgraded, they have 24.4% unemployment, of which 52% of this number are under the age of 25, with many of them privileged graduates ! At present we are seeing growth slowing in rich nations and they will buy less from countries with export-driven economies, such as Taiwan, Mexico and Malaysia and other developing countries which will still have to find a way to grow at a strong pace.

As an example, the growth rate in Russia has fallen to 4% from its boom highs of 8%. Other figures of growth rates slowing from previous highs are:

• Over the past month, India announced that its growth is slipping from about 8.5% to under 7%;
• Brazil admitted that its growth rate fell from around 4% to just 2.7%

Ruchir Sharma's, take on this matter is better encapsulted in his words:

"In this slower and more volatile world, the growth rates of countries and companies will start to diverge. A nuanced perspective may not have mattered so much even a decade ago, when developing economies represented less than 20% of the global economy and 5% of stock market capitalization. As of 2011, emerging markets account for nearly 40% of the global economy and just under 15% of global market cap. These economies are now too big to be lumped into one marginal class and are better understood as individual nations."

The World has changed: Only 10 years ago, emerging markets were seen as problem children of the financial world. Spin-doctors did all they could to bolster developing nations and Private capital flows into developing countries have surged, rising from $200 billion in 2002 to just under $1 trillion at their peak in 2010. Many observers came to the conclusion that the emerging nations were all "Chinas", destined for decades of rapid growth - a classic case of Anchoring in Behavioural Finance! In an article in Time Magazine [23 April 2012], Ruchir Sharma says that this is not likely. He postulates that "Economic development is like a game of snakes and ladders: nations are much more likely to get bitten and fall back than to keep climbing."

Within this huge pool of competing nations, only a few will defy the long odds against success One has to look at countries with a rich per-capita class, such as the Czeck Republic of $20 000 and above, breaking out will mean 3% to 4% growth in GDP, while in India, with an average per-capita class of $5000.00 and below, anything less than 6% to 7% growth will feel like a recession. China's economy is still one-third the size of the US's.

There will naturally be an uneven rise of certain emerging nations that will reshape the global balance of power, with America probably in a much better position. The currencies of major emerging markets are rising against the US Dollar, producing an American manufacturing revival.

[Ruchir Sharmais Managing Director, Head of Global Emerging Markets Equity Team, CFA, Portfolio Manager, and Member of Global Tactical Asset Allocation Investment Committee, Morgan Stanley Investment Funds - Emerging Markets Equity]

The above article might be confusing but in essence the message is that opportunities still abound. Companies, no matter where in the world they are, will prosper due to innovation and having a highly competative edge. The challenge is for investment professionals to seek out great companies with solid balance sheets and good management with great growth potential.

The first quarter of 2012 saw the S&P (US) Index climbing 12% - representing the biggest first-quarter gain since 2008. Likewise, the Orbis Global Equity Fund has grown by 13% year-to date against the MSCI World Index of 10.50% and the average Global Equity Fund of 9.8% .

Our job at Silke Financial Services is to find these astute investment professionals who manage funds and who have the full research capabilities to seek out high quality companies, wherever they might be able to take advantage of the "G-0" world we now live in.

Sources: http://www.foreignaffairs.com/articles/137539/ian-bremmer/every-nation-for-itself-winners-and-losers-in-a-g-zero-world Article in Time Magazine of 23 April 2012 "Hitting the BRIC Wall" by Ruchir Sharma