"China is growing so fast that it creates a new Greek economy every 11-and-a-half weeks."
"Diageo sells more Guinness into Nigeria than it does into the US or Ireland."
Goldman Sachs' Katie Koch helps the audience of the sixth annual Morningstar Investment Conference put growth markets into perspective. First up on the stage at the London conference, Koch says not one single European country will be among the top contributors to global growth over the next decade, In fact, her team expects that Turkey's contribution to global growth is going to be about equal to the UK's contribution over the next decade.
Despite this negative outlook for Europe, however, Goldman Sachs is actually very optimistic about the global growth outlook. "I believe the world can grow faster over the next ten years than it has over the last ten years," Koch says. asking the audience via a live poll if they agree, approximately 60% say 'yes', leaving 40% that disagree. Koch notes that this is still much more optimistic than the response she gets when asking the question in Continental Europe.
So where is this growth going to come from? Koch says it's down to the prospective growth of what Goldman Sachs terms the ‘Growth Markets’ – the eight economies that they believe will fuel the global economy: Brazil, China, Russia, India, Mexico, Indonesia, Turkey and South Korea.
Many investors opt for emerging market exposure via investing in developed-market companies that generate revenues in growth markets. Koch says, however, that this doesn't provide you access to the full story. "Good news for the UK equity market...there are some great UK companies that are tapping into these growth areas," Koch says, adding that "they should be a part of everyone's portfolio." But they don't--and can't--capture the whole growth and emerging market opportunity. There are aspects of emerging market growth that can only be captured by investing directly in the developing economies, she adds.
The main driver of growth and emerging markets is going to be demographics and growing consumer demand--the story isn't just about commodities--and tapping into this requires investing directly in emerging market companies, Goldman Sachs believes.
Not only are these markets going to fuel the world economy to grow even faster in the coming decade, but it's paramount to invest directly, and it just so happens that current valuations means this is a fairly good time to do that, Koch's presentation concludes. Though the debate rages on about whether economic growth means equity valuation growth, Koch says the single most important thing for investors to consider is whether they can access the growth story at a reasonable price. Right now, valuations provide an attractive cyclical entry point for a robust secular growth opportunity, Koch believes.
Asked for specific asset allocation guidelines, with a young person with a long time horizon in mind, Koch says Goldman Sachs believes 25% of a portfolio's equity exposure should be allocated to growth and emerging markets, and a similar 25% in the emerging world bond market. These figures reflect the scale and opportunity, but also the risks involved, Koch says.
Follow the conference live on Twitter @mstarholly or download the conference app at www.micuk12.co.uk.
