One of the strongest macro stories at this year’s Strategic Investment Conference is the decline of the Western world and the rise of emerging markets.
Speaking at the conference, Marc Faber, publisher of the long-running Gloom, Boom & Doom Report, explained why emerging markets will vastly outperform developed markets going forward.
Fully Priced US Equities
In 1970, the total market cap of US stocks as a percentage of GDP was 30%. Today, it is 130%.
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
With this massive run up in valuations, Marc believes US equities are the most expensive asset class in the world. As such, future returns will be much lower than they have been up to now.
Another sign that US equities are fully priced is the fact emerging market stocks have outperformed their US counterparts by around 3-4 times over the past 12 months.
The Growth of Emerging Markets
Economic growth in emerging markets is the underlying reason behind this rally. In 1960, China and India accounted for just 5% of global GDP; now they are at 30%.
In 1970, the countries of the G7 bloc made up half of all global trade; today they account for 30%.
One of the reasons for this massive decline is the huge increase in resource imports by China. Today, China accounts for half of all industrial commodity imports, a 25-fold increase since 1970.
Given this macro view, Marc thinks investors would be wise to avoid US equities going forward and instead focus on emerging markets.
As to what sectors he likes, Marc said: “If I had to choose only one sector to invest in, it would be resources. Right now, the resource sector is very depressed and there are many opportunities.”
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