Tuesday, 12 March 2013

Balancing act: merits of both developed and emerging markets

Emerging Markets, so the mantra goes, will be the saviour of us all and will pick up the baton from the developed world. Recent evidence would seem to indicate that this is not quite the whole story. After the storm in the eurozone led to some awful figures for car sales in Europe, manufacturers could be forgiven for thinking that, surely, bluer skies existed in the emerging world. However, data from the Society of Indian Auto Manufacturers indicated that car sales in India fell by 26% in the year to February as a combination of weak economic growth, high financing costs and rising fuel costs took their toll on consumers. As a reaction to this, Tata Motors has announced plans for buyers of its ultra cheap Nano to do so simply by swiping a credit card. When it was launched in 2009, the Nano was touted as the cheapest car in the world at an extraordinary price of about $2,000. It dispenses with many of the frills that one might normally expect from a car – one windscreen wiper, three wheel nuts rather than four, only one wing mirror and a boot that is only accessible from inside the car. However, to put the price into some context, the Model T Ford was initially priced at $850 which is equivalent to around $22,000 today. 

By contrast, vehicle sales in China rose by 20% in the year to February 2013. Inchcape, the global automotive distributor and retailer, painted a similar picture in their figures today. The UK – bizarrely the one hot spot in the European car market – and North Asia performed above expectations while Russia and emerging markets were below forecasts. Unsurprisingly, their Greek operations fell by 40% year-on-year.

So is it “Game over” for emerging markets? Far from it! Diageo reiterated their target of achieving 50% of their sales from emerging markets by February 2016 and is already at 43%. This is true of many of the large multinationals – General Electric, for example, has announced it intends to double its sales in sub-Saharan Africa over the next few years. Investors and companies, however, ignore the developed world at their peril. It has been interesting to note the statements from many companies recently that point to the strength of the US economy, a point that my colleagues, Guy and Ben, have made recently. The secret, as ever in life, is one of finding the right balance between risk and reward!

Rob Burgeman
Divisional Director - Investment Management

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