These Two Emerging Markets Just Got A Lot More Enticing
With U.S. economic growth on the wane and the European Union (EU) on the brink of collapse, there's never been a better time to increase your exposure to emerging markets.
And two fast-growing developing economies just became a lot more enticing.
I'm talking about Colombia and South Korea – both of which just signed free trade agreements (FTAs) with the United States.
Both treaties date back to the last days of the Bush administration – when bilateral trade deals were fashionable – but had gotten hung up in Congress.
To some extent, free trade agreements merely deflect trade from other paths. However, since the EU has signed a trade deal with South Korea and is negotiating one with Colombia, there are both defensive and trade-building reasons for these deals.
South Korea is a trillion-dollar economy and one of the United States' most important trading partners, with two-way trade totaling $74 billion in 2008. And Colombia's potential as a trading partner is enhanced by its geographical position – close to both the East and West Coast U.S. markets.
Both countries are growing quite fast. In fact, Colombia is expected to clock growth of more than 5% in 2011 and 2012.
The Biggest Beneficiaries
The South Korean deal offers the most potential to U.S. exporters, as the deal is expected to add about $10 billion to U.S. exports and gross domestic product (GDP).
U.S. exporters of agricultural products, which are projected to double from their current $2.8 billion, will be the primary beneficiaries. However, U.S. auto manufacturers and banks will also have a chance to break into the market.
On the other side, Korean exporters of cars, trucks and computer equipment will benefit from better access to the U.S. market.
Colombia has a thriving agricultural sector, but U.S. meat exports should jump significantly. Pork exports, for example, are forecast to grow 72%. IT companies and chemicals producers also will gain improved access to the Colombian market. But the greatest potential will be unlocked in the heavy equipment sector, as Colombia races to develop its mineral resources.
Reduced sanitary inspection barriers will improve the trade flow both ways. That will increase demand for Colombian coffee and flowers. But the big breakthrough will be in Colombia's energy sector, as the country's oil is an increasingly important export to the United States.
Now let's take a look at some of the specific companies that will cash in on these deals.
Grow Your Personal Wealth By Piggy-Backing on Emerging Markets
It may be hard to believe that people are getting wealthier these days, but they are – just not in the United States.
No, the growth in personal wealth that we're seeing today is taking place in emerging markets half way around the globe – far removed from the employment and debt problems plaguing the West.
Brazil, Chile, China, Colombia, India, Indonesia, Malaysia and South Africa over the past decade have all posted annual gains in individual wealth of more than 10% – and some well in excess of even that figure.
That compares to growth of just 5% in that period for the United States, Japan, and Europe.
What these growth ratessignal is a trend toward steadily increasing purchasing power – as well as consumption and investment – among the people in the world's emerging nations. That means growing markets and increased profits for businesses and financial institutions.
It also means more moneymaking opportunities for savvy investors with the foresight to ride the trends along with them.
Where's the Wealth Growing?
To uncover the best ways to profit, we must first find where the wealth is growing the most – and where it will keep rising.
The McKinsey Global Institute (MGI), a consulting firm specializing in management and economic research, maintains an index of the world's leading urban centers, known as the City 600. MGI reports the 600 cities in that group – 380 of which are in developed nations, including 190 in North America – currently generate just more than half of global gross domestic product (GDP).
However, by 2025, that percentage will increase to 60% of global GDP, and 136 new cities will move into the top 600. All 136 will be located in developing nations – with 100 from China alone – displacing North American and European cities.
Emerging Markets Provide Blueprint for Sustained Growth
The United States should look at emerging markets for clues on how to sustain economic growth, according to U.S. Federal Reserve Chairman Ben S. Bernanke.
While the advanced economies of the world have stagnated since 2008, countries like China, Brazil and parts of Southeast Asia have enjoyed growth rates in the 7% to 9% range. Although several have slowed this year, they're still faring better than the economies of the United States and Europe.
"Advanced economies like theUnited Stateswould do well to re-learn some of the lessons from the experiences of the emerging market economies,"Bernanke said in a speech delivered yesterday (Thursday) at a Cleveland, OH forum.
Specifically, Bernanke attributed growth in emerging markets to "disciplined fiscal policies, the benefits of open trade, [and] the need to encourage private capital formation while undertaking necessary public investments."
The so-called advanced economies certainly could benefit from more fiscal discipline. Decades of profligate government spending have created debt problems that are crippling those economies.
In the United States, which has the world's largest debt at $14.7 trillion, the issue triggered a political crisis over the debt ceiling this past summer that roiled stock markets. Although the United States is unlikely to default, the growing debt – 98% of the nation's gross domestic product (GDP) — hangs over the economy, hindering growth.
In Europe, the situation is far worse. Greece has been teetering on the edge of default for more than a year. It's been sustained only by the flow of bailout money from stronger European Union countries like Germany.
Greece isn't alone, either. Countries like Italy, Ireland, Portugal and Spain also have dangerously high sovereign debts. The crisis has hobbled the economy of the entire European Union (EU), with no end in sight.
One of the main reasons many emerging economies have thrived is that they have avoided the rampant deficit spending that created the crippling debt in the advanced countries.
And because they haven't been struggling, most emerging market economies have much greater flexibility in their monetary policy – they have leeway to lower interest rates – to cope with the current global slowdown.
Bernanke noted that emerging markets account for more than half of total economic activity today, up from less than one-third in 1980.
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Apple Inc. Surges Ahead of ExxonMobil to Become World's Most Valuable Company
For the second day in a row, Apple Inc. (Nasdaq: AAPL) passed Exxon Mobil Corp. (NYSE: XOM) in market capitalization, making it just the 11th company in history to hold the title of "World's Most Valuable Company."
But although Exxon managed to squeak back ahead of Apple by the end of trading Tuesday, it could not hold on to its lead yesterday. Apple ended the day at $363.69, giving it a market cap of $337.17 billion, while Exxon finished at $68.03, making its market cap $330.77 billion.
It's likely that the two giants will trade places several more times in the days and weeks ahead, but eventually Apple's momentum will make it the undisputed king of market cap.
'Facebook Rule' Would Delay IPOs, Open Door to Secondary Market Excesses
You may not yet have heard of the "Facebook Rule," but it's cause for concern.
Its formal name is the Private Company Flexibility and Growth Act (HR 2167), and it was introduced to the House of Representatives on Tuesday by Rep. David Schweikert, R-AZ.
Officially, the bill aims to increase from 500 to 1,000 the number of investors a company can have before it is required to publish its financial information. But in reality, it would simply delay companies from going public – thereby encouraging trading in secondary markets that are rife with questionable practices and shutting out the average investor.
Bitcoins: An Online Currency You Can Trade Like a Stock
Chances are, you've never before heard of Bitcoins.
So here's a quick primer: Imagine a type of money that you can't put in your pocket, that you can trade like a stock, that you can earn with your computer, that enables anonymous transactions, and most importantly, has skyrocketed in value 399,900% in the past year.
That's precisely what we're talking about with Bitcoins.
Emerging Markets Battle Developed Countries to Deliver New IMF Managing Director
Dominique Strauss-Kahn resigned as leader of the International Monetary Fund (IMF) late Wednesday night, triggering a global battle between developed economies and emerging markets to find a new IMF managing director.
Strauss-Kahn, who was arrested May 14 on sexual assault charges, said in a statement released yesterday (Thursday) morning that he felt "compelled" to resign.
"I want to protect this institution which I have served with honor and devotion, and especially – especially – I want to devote all my strength, all my time, and all my energy to proving my innocence," Strauss-Kahn wrote.