America Blows Past Germany in the Export World

by Carl Delfeld

America Blows Past Germany in the Export World

by Carl Delfeld, Global Equities and Emerging Market Expert

Wednesday, February 23, 2011

Are you one of those with a doom-and-gloom attitude about America's economy?

Cheer up. U.S. exports rose 21% in 2010 to $1.28 trillion - the sharpest rise in American exports since 1988.

It means that America has now passed Germany to become the world's second-largest exporter behind China. And that's even more remarkable when you consider that only 1% of U.S. companies export anything at all!

In addition, 74% of 2010 exports were manufactured goods, and the United States remains the world's largest manufacturer. The export of agricultural products, including fish and lumber, rose 18% during the year to $65.7 billion...

The news comes as G20 finance ministers discuss ways of tackling soaring food prices. For example, Indonesia is already importing large quantities of rice as heavy rains have affected its crop and, in turn, driven up the cost of rice. World Bank President Robert Zoellick said last week that the rise in food prices had already pushed an additional 44 million people into extreme poverty.

Problems in Portugal and a New King of the Auto Road

Over in Europe, the performance of the region's stocks so far this year has surprised many. The indexes in Germany, France and the United Kingdom are up 8%, 7% and 5% in 2011.

What could derail this rally? In a word: Portugal. High borrowing costs and employment are adding to the country's debt pressures. For example, the interest rate on Portuguese 10-year bonds is at more than 7% - a level that even the government has acknowledged can't be sustained.

And speaking of problems, David Bonderman, co-founder of private equity firm TPG Capital, cautioned that private equity investors face a "crisis of expectation" in emerging markets.

At a speech in Hong Kong, he said, "There will be dislocations. Emerging markets are volatile. At some point there will be despair just as there is euphoria now." Bonderman pointed out that there are over 100 foreign private equity firms looking for deals in China right now.

Elsewhere in the emerging market world, redemptions from Brazilian equity funds hit an eight-week high this week. Will Landers, Managing Director for Latin America at BlackRock, with $10.2 billion under management in the region, has been overweighting Brazil and building positions as others pull out. I agree with Landers, but it's key that Brazil follows through on announced plans to cut spending and trim interest rates.

In India, the Sensex stock market is down 15% in 2011, but foreign direct investment (FDI) is going the wrong way. In 2008, India attracted $41 billion in overseas investment. In 2009, FDI dipped to $35 billion. And last year, FDI collapsed to $14 billion for the first eight months of the fiscal year.

And prepare to see a new leader in Europe's auto market. According to Boston Consulting Group, Russia (already up a surprising 10% so far in 2011) will push out Germany as Europe's largest market for cars and vans by 2018. By 2020, it will sport the world's sixth-largest car market - up from 10th place at the moment. And this despite the fact that Russia's auto market sank by 50% in 2009.

Finally, news that over the past four weeks, investors have pulled out over one-fifth of the record-setting $95 billion they parked in emerging markets equity funds during 2010. (Watch for my upcoming article on how to play this trend towards mega-cap companies.)

Good investing,

Carl Delfeld

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