Lands of opportunity

I am now in the home stretch of a trip from Copenhagen to Moscow to Dubai to Hong Kong and now Beijing, my final stop before returning home to Denmark. Spending eighty per cent of my time in the so-called 'developed markets' its striking to travel through other countries that lie on various points of the “emerging” spectrum.

First, it's nice to leave the European debt crisis' and its negativity' behind and meet people for whom the future is about improvement and working hard. What a difference to Europe where the blame game is the only game in town.

Second, it’s interesting to see how the emerging economies are evolving. But there is something that is still lacking: there is a need for a new political and economic equilibrium after the 2008-09 financial crisis took the air out of the 'leverage to infinity' game. These countries will all need to change their economic paradigms in order to generate the growth and private consumption of a fully developed economy for which they strive.

History shows us that after cheap labour and productivity gains have done their job, the next phase requires broader and more sophisticated capital markets for both domestic- and foreign investors. All three regions I have visited have a platform which has worked in the past and the results are impressive. What China and Dubai have done over the last 20-30 years has taken other nations hundreds of years. The low hanging fruits are now in the basket.

The heavy dependence on foreign demand needs to be replaced by a more balanced economy and one where competition is increased among the stale, complacent domestic sectors. More intense competition would reduce the biggest tax in all three regions: Corruption.

Even baby steps in the right direction would free up growth and capital which would protect these economies from the inevitable Europe debt fall out, but time is running out and fast.

It's interesting that just about the only luxury of travelling the world is to see with my own eyes how all business models and all economic theories fail to describe and correct the world’s present unbalanced deficits:

• Record high private savings in the world
• Record high public sector dis-saving
• Sixty percent of all currency reserves are in Asia
• Current account imbalances are increasing internally in Europe, between Asia and the West.
• Foreign direct investment trajectories, a sub account item of the those current account imbalances, are concerning in India, Brazil, China and Russia – that’s right: the BRIC's

This is why we need to see changes. The hot money is now leaving these regions, but not necessarily only because they are losing faith in the long-term prospects for the BRICs and other countries, but due to the lack of investment opportunities. 

Sixty per cent of currency reserves cannot be converted into investments as Europe and the US remains the only capital markets big enough to absorb this kind of flow. In other words, improve and deepen local capital markets and less capital will go abroad seeking return.

And, with increased competition, more and better investment opportunities will arise and there will be more local economic activity that governments can tax fairly for revenue. Sometimes the world is so poorly balanced that a few simple steps are needed to improve everyone's position and outlook.

This trip has confirmed my theory that poor macro policies in emerging economies are compounding policy mistakes that at best risk contributing nothing to growth, and at worst are subtracting three to five per cent.

The micro economy on the other hand is on the rise, as positive compounding has been a result of disengaging from austerity and tax rises. If you leave more room to individuals to go about their business, things tend to work out better.

In so many of the emerging economies, there are a few simple steps that must be taken to improve everyone's position and outlook. And we have to hope and believe that the right choices will be made and that better times lie ahead for the global economy, not worse ones.

A more balanced world economy would be a very positive story for global markets to grasp onto, and one which the big saving surplus countries need more than anyone else.

Safe travels,

Steen