If a rising tide lifts all ships, then we are in for two decades of exceptional returns. At least if Dr. Gerard Lyons of Standard Chartered Bank is correct that the world is now in a new
Super-cycle driven by the industrialization and urbanization of emerging markets, and global trade.
For those of you are unfamiliar with Dr. Lyons or Standard Charter Bank, here is a brief introduction.
Standard Charter Bank is a British financial services company headquartered in London. The current bank is a combination of two 19th century banks that served the needs of the British Empire by developing banking services in the former British colonies. The bank earns close to 90% of its profits from operations throughout Asia, Africa, and the Middle East, with long standing operations in India and Hong Kong. It is truly the bank for the emerging markets.
Dr. Gerard Lyons is the Chief Economist and Group Head of Global Research for the bank. He is a recognized expert in world economics with an impressive resume. He is serving as a Committee Member of the Hong Kong Association, as a member of the Joint Advisory Board for the Grantham Institute at Imperial College and the London School of Economics, and is on the International Council of the Bretton Woods Committee. He has sat on three key groups of the World Economic Forum in Davos, and has testified to the US Senate Banking Committee, the US Congress Foreign Affairs Committee and the UK Parliamentary Committee.
On November 14, 2010 he published “The Super Cycle Report.” It runs at over 150 pages, but I would suggest you set aside some time to read the entire report available at Standard Charter’s website if possible. In this report, Dr. Lyons describes a super-cycle as
A period of historically high global growth, lasting a generation or more, driven by increasing trade, high rates of investment, urbanization and technological innovation, characterized by the emergence of large, new economies, first seen in high catch-up growth rates across the emerging world.
Too many of us make our investment decisions based on the short-term economic outlook of our local economy without considering the fact that our local economy is fully intertwined with the world’s economy. I believe that global corporations are not making the same mistakes. You can easily hitch a ride with these companies through stock ownership.
In order to help you get on board, I want to offer you a summary of a few of Dr. Lyons findings:
- By 2030, the world’s economy will grow at an 8.3% compounded nominal growth rate, or from $62 trillion to $308 trillion.
- This growth will be lead by emerging economies, but fueled by the creativity of the developed countries’ economies.
- Economies that control cash and commodities will be huge beneficiaries of this growth.
- The world’s population will increase from its current 6.9 billion to 8.3 billion by 2030.
- In the emerging markets, demographics favor India over China, and in the developed economies the U.S. is favored over Europe.
For those of you who believe that economic growth will be reflected in the markets, then based on Dr. Lyon’s assumptions here is what the markets could be in 20 years:
- Dow Jones Industrials without dividends: 55180 (11,200 compounded at 8.3% for 20 years)
- S&P 500 without dividends: ` 5912 (1200 compounded at 8.3% for 20 years)
Many of you may look at this and believe it impossible. But let me remind you that the Dow Jones Industrial Average closed at 2,446.33 on October 31, 1990. The current level of 11,200 reflects a 7.9% compounded return over the last 20 years despite recessions and two major market crashes. The thought that the Dow would reach its current value was laughed at 20 years ago, just as the thought that it can reach 55,000 by 2030 will create many laughs today.
Disclosure: No positions