Super-Cycle: 30-Year Global Boom Predicted

|
Includes: BIK, BKF, FXI, IFN, PGJ, PIN
by: Jim Trippon
It's high time to look beyond the U.S. The mediocre American economy is no longer a reliable guide for investors – not over the next two decades.

The fact is we are already in a "Super-Cycle". Of course, you wouldn't know it from looking at U.S. employment and foreclosure numbers. But this Super-Cycle is global and we've been in it for ten years.

The word "super" may sound like so much hype. It is used a lot these days.

Just a few days ago, I reported on Citigroup's prediction that the world is entering a "Super-Goldilocks" period for emerging markets. That prediction called for gains of 30 to 35 percent over six-months in emerging markets…in particular the MSCI Emerging Markets Index.

Now the legendary global bank Standard Chartered is predicting a global economic Super-Cycle. It's going to last three decades. The coming changes will be colossal.

Before we get into detail, let's clear up the term Super-Cycle. It is not hype. It's a powerful part of world history.

There have been two previous Super-Cycles:

  • The first massive Super-Cycle lasted 43 years. From 1870 to 1913 America and England led an unprecedented boom in global prosperity. It was called the Industrial Revolution.

  • The second Super-Cycle lasted from 1945 to 1970. This one was led by Japan and Germany as they recovered from the Second World War. With American help they became economic superpowers.

  • We are now in the third Super-Cycle. It began in 2000 and should last until 2030.

Standard Chartered defines a Super-Cycle as a "period of sustained high global growth lasting a generation or more". That means "increasing trade, high rates of investment, urbanization and technological innovation".

But that doesn't mean that there won't be some craters in the road ahead. And it certainly doesn't mean that we'll all gain from the boom times.

Who Will Profit?

The outlook is brilliant for merging economies. Already, China has averaged 10.3 percent growth for the first decade of the Super-Cycle. Two more decades of growth will put China at the top of the global economic heap.

China will zoom past the U.S. by 2020. China's economy will be twice as large as the U.S. by 2030.

China has already sparked a global industrial revolution. But you haven't seen anything yet.

(As you look at the following predictions, don't forget what will happen to worldwide demand for commodities.)

Within two decades China will account for an astounding 24 percent of global output. That's up from just nine percent now.

India will be the other major winner from this generation's Super-Cycle.

India is set to become the fastest growing major economy in the world by 2012. Its billion-plus people will make up the world's third largest economy in the next two decades. Japan will trail in fourth place.

The per capita income of Indians will shoot up from the current $1,000 to $7,000 by 2030. China's income gains will be even more stunning. Per capita income will balloon fivefold, from $4,166 today to $21,420!

India will grow at 9.3 percent per year for the next two decades. China will average 6.9 percent growth. And those numbers will become the engine of generational change.

By contrast, the U.S. is expected to remain mired in the economic doldrums for another two years. Standard Chartered expects the U.S. will eventually resume its usual 2.5 percent growth rate.

Investment During the Super-Cycle

It doesn't take a fortune-teller to realize that China and India will be prime investment targets over the next two decades. But don't forget that their Super-Cycle is a global event.

India and China's explosive growth will expand worldwide economic activity to an astounding $308 trillion by 2030. That's more than double the size of the global economy now. No investor should be surprised that this cycle will impact every investment decision.

Demand for commodities will become voracious. The recent gold rush for rare earth minerals will be just a taste of what is to come. Demand for steel and its raw materials will significantly exceed supply in the long term according to Metal Bulletin. The coming shortage means much higher prices.

Oil and other forms of energy will also shoot up in value. Although some analysts predict adequate oil supplies for another decade or two, that doesn't mean cheap oil. Every new barrel found comes from deeper wells in more dangerous and difficult regions. The BP oil spill is a graphic lesson about the cost of new oil.

Name the commodity: aluminum, coal, silver, nickel and copper. All will be in high demand as China urbanizes and India build infrastructure. As currency wars threaten to continue, gold and silver will be in constant demand as a currency hedge.

Among U.S. investments, the best performers are likely to be multinational companies that sell into emerging markets. India and China will do their best to replace American manufacturing capacity. That means companies with unique expertise or access to resources will ride out the Super-Cycle most profitably.

Don't forget. The Super-Cycle is already underway. We are one third of the way into an investment boom of the century. It's past time to position your portfolio for this generational watershed.

China's Long Run

China is still marching rapidly up the ladder of global competitiveness. But it still has a long way to go. The latest Global Competitiveness Report says China has moved up in the rankings by two notches. The Chinese economy is now the 27th most-competitive in the world. Last year's ranking for China was 29th place.

China's status may sound unimpressive, but consider the status of the other members among the much-admired BRIC economies. Brazil is ranked 58th. India is in 51st place. Russia is at the bottom of the group in 63rd place.

The U.S. is dropping down, according to the same report from the World Economic Forum. From its usual top spot, the U.S. has now fallen to fourth place. The blame goes to "chronic trade imbalances, weak public institutions and poor financial markets".

China is now poised to become the global innovation leader according to a report by IP Solutions. The firm examined patent activity in China, Europe Japan, Korea and the U.S. Amazingly, China experienced an annual growth rate of more than 26 percent in patent volume. The closest rival, the U.S., achieved a 5.5 percent growth rate from 2003 to 2009.

China will lead the world in patent activity in 2011, the report concludes.

The decline in U.S. education does not bode well for long term competition between the U.S. and China. As the U.S. falls behind most industrialized countries in educational achievement, China excels.

At a recent senate hearing, testimony indicated that only two percent of all 9th grade boys in the U.S. and one percent of girls will attain undergraduate degrees in science or engineering. Forty two percent of college undergraduates in China earn science or engineering degrees.

The U.S. awarded 137,500 engineering degrees in 2005. China awarded more than twice as many: 351,500. The plain fact is that China's leadership is focused on job creation, education, economic growth and industrial leadership.

It is now widely acknowledged that China has taken the lead in green energy technology. This is no accident. Aggressive and focused policies from Beijing are the reason that China leads the world in this industry of the future.

As America casts its ballots, there is little reason to hope that any government which emerges will have the unity and resolve to take the necessary steps to put the country back on the road to economic leadership.

China will stand out for decades as the preeminent target for growth investing unless the U.S. eventually takes real action on the issues that matter most.

Disclosure: No positions