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Market commentary December 2006

By December 4, 2006No Comments

SUMMARY.  Rather than focus on concerns over a wobbly dollar, we take a more positive look at the huge potential in emerging markets, and China and India in particular.

The UK stockmarket hit 6000 in mid-March and, on balance, is little changed since then.  If concerns over the dollar grow in coming days it is not inconceivable that the market could end the year lower than it started, possibly even towards clear support at 5500.  This prospect certainly appeals to us, as the fear that this would engender will create some superb buying opportunities as we move into 2007.

But the festive season lies ahead, so how about identifying something a bit more cheerful to tuck away in your loved one’s Christmas stocking?  Our analysis highlights emerging markets as a long term cracker.  Consider some of the facts:

In a recent survey The Economist stated that as the emerging markets continue to integrate with the rest of the world it will “provide the biggest boost to the world economy since the Industrial Revolution”.  Where the industrial revolution impacted on one third of the world, the impact of emerging markets affects the whole planet, and will continue to do so for decades to come.

There are 5.5 billion people in emerging economies and they already account for more than half the world’s total energy consumption. Yet oil consumption per head in China is still only one third of that in the US, and in India it is one third of that in China.  It is reckoned that China’s oil consumption could increase tenfold in the next three decades.

McKinsey estimate that from now to 2015 emerging consumers’ spending power will increase from US$4 trillion to US$9 trillion, which is equivalent to the entire spending power of Western Europe.  Goldman Sachs reckon that by 2040 the total number of cars in China and India will rise to 750m, more than all the cars in the world today.

By 2040 China should be the world’s largest economy if current reforms and trends continue apace, at which point the population of India (which is perhaps 10-15 years behind China with reforms and infrastructure development) will be greater than China.

The Indian catch-up potential is vast.  Only half of Indian roads are paved, with only 20% considered to be in good condition.  China spends about ten times more on roads than India.  Forty per cent of all India’s power production is stolen.

We are in the midst of producing a focussed report on emerging markets, the opportunities, and how you can benefit from them.  We will email you in January when it becomes available.

Dennehy Wealth