The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general information only.

David Burt - Investment Specialist
Published on
Clients often ask me where in the world they should invest and the saying “Surf where the waves are big” sometimes springs to mind. If you want a big reward, you need to be where the action is.

So where is the investment action right now? Where should you start to look?

Consider two things: value and economic growth. The latter is self explanatory, and by ‘value’ I mean places where investment assets seem cheap for now, compared with what is normal for those assets/markets.
 
Traditional investment markets are flat

The fact is, many investment managers are struggling to find any investment markets (principally cash, fixed interest, shares, property, commodities) that look cheap.  The cause is largely down to the fact that governments have created so much cash since the Global Financial Crisis (GFC) that prices in these markets have been bid up. The US in particular has created some trillions of new Dollars, and much of this cash has flowed into bonds, shares and property.


This year, Japan, too, has set its printing presses to full speed and Europe has said it is about to do the same. And as if that wasn’t enough, Bond prices are so high they haven’t been seen at these levels in several centuries. No bargains to be had there either, it would seem.
 
Are geographic markets the answer?
With cash rates and fixed interest waves looking 'flat' or 'blown out' because of low to modest returns for a while yet to come, what about geography?
 
There are countries/regions with strong prospects for economic growth that could generate ‘big waves’ with an attractive break for your investment dollar. Here are three key factors you need a lot of for big economic gains:
 
  1. Population (let’s say more than 100m people) - 11 countries
  2. Land (more than say 2 million sq km) - 12 countries
  3. Capital (GDP over US$2 Trillion) - 10 countries

Countries that tick the boxes

The countries that tick all three boxes are Brazil, China, India, Russia and USA.

Only five other countries tick two of the three boxes: Australia, Canada, India, Indonesia, Mexico.

Land area is a constant, but when you focus on growth in people and capital, here are the likely stand-out improvers over the next 10 years: Brazil, China, India, Indonesia and Mexico. Russia is questionable, especially on the population front.
 

So where in the world do I invest?

Whether we like it or not, cash and fixed interest are likely to disappoint for years to come, purely because we know for certain that the world is now awash with cash, and getting much more so.  And the reality is that, Australasia aside, the developed world has no bright spots that any ‘surfer’ would rate as big waves. The US is, thank goodness, chugging bravely forward, but weighed down by huge debt, which hampers capital growth.
 
An investment portfolio that needs reasonable diversification in the decade ahead will have to give serious consideration to how these new ’big waves’ can be played for investment returns. Without a slice of their action, the outlook for returns, everywhere, is modest.
 



The above note is not personalised for any individual or entity. It does not take into account your particular financial situation or goals (or any one or more of them). If you act on information contained in this note the outcomes may not be what you expected nor suit your particular circumstances. Neither David Burt, Alliott NZ Ltd, Alliott Financial Management (NZ) Ltd nor Global Portfolios Ltd will be responsible for any loss or non-payment as a result of actions taken upon information or recommendations provided in this note. Readers should seek investment/tax advice prior to action in relation to any of the matters discussed above.
 

Topics: cash commodities fixed interest GFC Investment markets property shares