The World's Market Capitalization is Shifting
Emphasis in major market capitalization is shifting away from established
industrialized countries toward emerging markets.
US market dominance has dramatically declined. The present tendency in
the US to excess equity market valuation will accelerate the movement of
capital to more attractive emerging markets. Share valuations in Asia, often
at 1 1/2 times book value, compare most favorably with characteristic
multiples of 6 for similar companies on the US market. Major US pension
funds, e.g., CALPERS, are in high gear to diversify internationally by direct
investment in emerging market growth companies.
It will be some time before confidence in the Japanese capital market fully
returns.
The less liquid European equity markets, compounded by economic
Uncertainties, remain unattractive.
The move of investment capital will clearly be toward the emerging
economies of Asia, Eastern Europe, and Latin America.
World Economic Opportunities are Moving Too.
Prior to 1970, the US represented half of the world's Gross National
Product (GNP). By 1995 it's share of world GNP had dropped to one third.
Estimates are that by 2010 the US share of world GNP will have dropped to
one quarter.
The European economies are faced with an endemic problem of rapidly
aging populations increasingly burdening their producers with taxes to cover
the escalating costs of state-funded retirement benefits as fewer wage
earners have to pay for growing numbers of retired persons. The net effect
inevitably is declining competitiveness in a world market increasingly
dominated by lower cost producers in countries with abundant young labor
resources. The current political swing in Europe toward more socialistically
inclined governments can only exacerbate growing unemployment and
declining productivity problems.
Any serious investor has to think in global terms!
Wise institutional and private investors are responding to these trends by
diversifying their portfolios internationally.
Considering the inherent investment risks in emerging markets where
some degree of disorder is present, private investors without the necessary
research capacity to make sound investment decisions independently, take
refuge in collective investment schemes, including partnerships, unit trusts,
and funds.
Domestic security dealers in countries with substantial capital markets, such
as the US, are not necessarily well equipped to comfortably manage the
transition from local trades to international ones.
European brokers with stronger international orientation may find it easier,
thanks in part to the access they have had to offshore funds which have
taken the lead in emerging market investing. Hence, the growth in offshore
funds has been phenomenal. As the economies of Eastern Europe, Asia and
South America expand further, this growth will accelerate.
The fundamentals are in favor of emerging economies with abundant
workforces and a national desire to succeed. Until they reach the stage of
maturity where their savings rates begin to satisfy their capital needs,
these
countries will continue eagerly to invite foreign investment.
Under circumstances requiring cross-border investment on an
unprecedented scale, the offshore financial services industry offers
opportunities of a lifetime.
The question is whether it can systematically rise to the occasion to retain
the initiative without becoming bureaucratic in itself and so lose its
principal
regulatory advantage over domestic financial centers.
Offshore finance is no longer the exclusive domain of the very wealthy, and
as its clientele becomes more mainstream, the nature of its services and
their
means of delivery are changing dramatically.
The ability to securely communicate complex information around the world
in a flash, profoundly affects the way in which business is conducted.
Offshore finance is a prime candidate for electronic delivery of services on
a
grand scale.
For more information on the world of offshore business go to
http://www.valtechservices.com
and click on Offshore Special Report. Between the manual that is
provided, and the four special reports on four of the world's best financial
districts, this is a great information source.
About the Author
Dave Laforge
webmaster@valtechservices.com
Webmaster of the Valtech Services Group