Wednesday, June 15, 2011

Stock Markets: The Power Of The Emerging Markets

Yesterday the stock markets bounced a bit. This was a reaction to the strong economic numbers from China: Their industrial output gained 13.3 percent compared to a year earlier, and retail sales rose 16.9 percent after a 17.1 percent gain. This is a clear signal that the rapid growth in China continues and supports the whole world economy.

But I guess, generally the stock markets underestimate the power of the emerging markets. In the gloomy sentiment of the recent days many investors ignore that large parts of the world are still in a rapid growth mode. Not only is China a high growth country, many other countries are too - like India, Russia, Brazil and Turkey. I guess we can expect some decades of high growth in a majority of world markets which will also benefit the USA & Europe and their stock markets.

There are at least 3 reasons for this:

1. Catch Up: China & Co. have a tremendous backlog demand because income & fortune are much lower than in the western world. But they have billions of talented & diligent people who want to reach the US and European standard. Therefore these people are working hard and investing to be able to expand their consumer expenditures in the near future.

2. Economic Liberalization: Many countries have learned their economic lessons well. Even communist countries such as China are now relying upon the power of free markets and encourage their entrepreneurs to invest.

3. Technical Progress: Moore´s law, which predicts rapidly falling costs for computers and other electronic devices, along with the brisk evolution in software, help these emerging markets to quickly modernize their economies.

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