The Investment U e-Letter: Issue # 610
November 22, 2006
Global Growth: The Boom In Global Finance Has Begun
by Horacio Márquez, Investment U Advisory Panelist Editor's Note: Overseas expansion is continuing its torrid pace. China is expected to show 10.5% GDP growth next year, India is approaching a rate of 10%, and Russia just posted strong GDP growth of 6.6% in the first nine months of 2006. According to Horacio Márquez, The Oxford Club's premier international equities specialist and the former head of Emerging Markets Research at Merrill Lynch, the growth is just beginning--especially for one sector in particular…
One thing I can say with utmost confidence right now is this:
We're about to witness an historic event in the global finance markets. Fact is, we've never seen this kind of explosive growth - the kind that's about to bring prosperity to early investors who go after the global growth strategy even in the face of the "wall of worry" that's plagued the markets from May through August of this year. You see, precisely the same the fears of inflation, Fed tightening, the housing bubble, and instability in the Middle East that negatively affect some markets are doing just the opposite for others. These fears are propelling banks and businesses that are financing this global boom to distribute these risks, and escalate the use of certain little-known methods… To understand just how profitable - and inevitable - the growth in this sector is, you've got to look at the powerful trends propelling it forward. There are several drivers pushing global finance into the stratosphere… Sustained Acceleration in Global Growth According to the OECD (Organization for Economic Co-Operation and Development) - a group of the top market-oriented economies in the world - the expansion of global trade has risen from a growth of 7.3% in 2005, to 9% for both 2006 and 2007. This increase in trade, in turn, is accelerating global economic growth. The OECD expects global growth to be around 3% for both 2006 and 2007, up from 2.8% in 2005 - one of the most profitable years for international stocks. More importantly, the OECD sees inflationary pressures abating, allowing for stable and even declining interest rates in 2007, which will spur economic growth further, especially as we come out of the current mid-cycle slowdown in the U.S. And get this: These estimates hold despite high energy costs and down-spiraling real estate prices in the U.S. and other economies. A key ingredient of this global economic growth is something that the consulting firm McKinsey & Co. recently identified in a worldwide study released this year. It's called "financial deepening"… Global Credit Is Booming Simply put, "financial deepening" is the expansion of the availability of credit within an economy. This, in turn, liberates capital for further expansion. You see, as credit expands and is made more available in an economy, people are able to use the money that would have been "frozen" in assets like houses and cars. Now they can use that capital to invest in their own businesses or in other sectors of the economy. This expansion of credit - provided that it is extended and used prudently - leads to higher rates of growth, consumption and real incomes. For example, in the U.S., residential mortgages as a proportion of the economy grew from 45% to 64% from 1990 to 2003. However, in Spain, residential mortgages grew from 11% to 42% of that economy. (Imagine the profits that can be made in Brazil, Russia, China and India when that level of economic growth hits home.) The growth of credit has occurred through bank loans and, for governments and corporations, through the growth in bonds and other market-based financing alternatives. This has been a bonanza for the financial intermediaries such as banks, insurance and reinsurance companies, and other intermediaries - whose business has grown exponentially. Leading Global Finance Sectors Globally speaking, one of the financing sectors which has grown the most - and which will continue strongly - is infrastructure, typically financed entirely with very long-term credits. Because trade and economic activity demands roads, bridges, ports, electricity, water, and communications, the world is bent on a massive infrastructure build-up… including the enormous infrastructure redevelopment phase the U.S. is heading into. And this trend has not only benefited banks and financial companies, but also top-notch investment firms - like the Carlyle Group - which have launched infrastructure funds to provide part of the massive financing that will be needed. Hence, traditional intermediaries find themselves competing with mutual funds and hedge funds. To be sure, global growth and expansion is on fire. And for the companies financing this growth, profits will be red-hot for years to come. Good investing, Horacio Editor's Note: Horacio just released his latest research report on economic boom opportunities last week. It contains an in-depth analysis of the current strength of worldwide fundamentals. Read the full report. Today's IU Crib Sheet: - China's raging GDP has fueled the MSCI China Index 52% year-to-date. It's about to get even better, too. Here's why.
- Global growth by the numbers: Of the 29 MSCI Indexes that track stocks in Latin America, Asia, the Middle East, Europe and Africa, 18 are up by double digits over the last 12 months… and only four are down. Joining China at the top are Indonesia (58%), Morocco (54%), Venezuela (49%), Argentina (48%), Philippines (45%), Peru (45%) and India (41%). To see a full listing of worldwide stock performances, check out MSCI Barra.
Shock Stocks: Shares of China GrenTech (Nasdaq: GRRF) climbed 11% Monday, to $17.50. Since the company reported earnings on November 7 (and a 20% jump in revenues), the China-based wireless manufacturer is up 35%. The Oxford Club Portfolios As of 11-20-06 64 Positions… 59 Winners = 92% Success Rate Learn more about the Oxford Club… Related Articles: Investment U Archives | 
