CAPE TOWN () -- The numbers are overwhelming and incontrovertible. And, if there were any lingering doubts about the continuing strength of demand for minerals in Chindia (China and India), they were laid to rest by Brian Hicks, Portfolio Manager at U.S. Global Investors Inc. in his keynote address at in Cape Town.
Back in the U.S., 5% of the world's population produces some 30% of global GDP. Technology and productivity are the drivers. But the rest of the world has seen how well Americans (and most everyone in the OECD countries) live - and they want to catch up fast.
Compare the world's emerging markets to the U.S. They have 80% of the global population, 75% of its land mass, 66% of the world's foreign exchange reserves, and they generate 50% of global GDP. And, in round figures, last year the so-called developing countries ran a combined current account surplus of $700 billion, matching the deficit of the developed economies.
But while the sovereign debt ratings of the emerging economies are steadily improving, as a whole their corporate debt to equity ratios are low, very low, compared to those of the U.S. or Japan. So here, Hicks told delegates, is an obvious opportunity for investors looking to participate in the funding of Chindia's stellar growth.
Commodities? These days, each American consumes 28 barrels of oil a day. Your average Chinese uses only 1.7 barrels. And China's figure is twice India's 0.9 barrels. Do you still believe that oil demand can drop off?
By the year 2020, Hicks reckons, Chindia will be swallowing 20% of the world's oil, and oil production is rising sharply in the Middle East, in the new African producing nations and from all those "difficult oil" fields. If they are to be developed, oil cannot drop below $45/bbl - the days of $20 oil are long gone.
Sure, the current economic bases for the two most populous countries' growth are different. India's is based largely on consumption, China's on fixed capital investment and infrastructure development. Not that this detracts from the growth rates - China's is a percentage point or so greater than India's.
But look at the potential. Per capita steel consumption in the mature economies of Korea and Taiwan is 4.5 times that of China itself. Catching up means all sorts of opportunities, and not just for iron ore miners. In Japan, there are 55 cars for every 100 people - a 55% penetration rate. In China, with a population eight times that of Japan, penetration is a measly 1.6% and in India an even more pathetic 0.9%. Draw your own conclusions about future trends when the average family sedan contains 44 pounds copper, 26 pounds aluminium and whose steel was made from 2,200 pounds of iron ore and 880 pounds of coking coal.
Get away from cars - the Chinese are becoming more mobile, they need roads and airports (75 are being built at present). So should you be considering adding, for example, Caterpillar to your investment portfolio? At present, China boasts one (yes, one) liquefied natural gas (LNG) terminal. Over the next 10 years, 20 more will be built.
We could go on. But the picture is clear, Chindia and many of the other emerging market economies are a growth train that cannot be stopped. America's pension funds are under-weight in emerging market stocks. Sooner or later their fund managers will start to adjust portfolio balances. Does this provide just the slightest glimmer of a possible strategy for the early-bird private investor?
