Technological progress spurs emerging markets

In Bangkok recently, the guru said technology was very much a theme of his current outlook.
“One of the great things [that are] happening to the benefit of emerging markets is the speed and volume of information flow created by technologies – we’ve seen this not only benefiting manufacturing processes and service industries but even society as a whole,” he said.
He noted that the enforcement of greater transparency helped to keep all of us even more accountable – governments, corporations and individuals all find it harder every day to get away with disseminating misinformation or holding back information.
Referring to the famous US whistleblower Edward Snowden, he said the episode showed that no one is allowed to get away without being challenged, as information can travel globally.
In Germany, Mobius bought a phone and a card that could call anywhere in the world for just 25 euros (Bt1,040).
“This is one of the reasons why emerging markets can keep closing the gap on developed markets and why frontier markets can close the gap to emerging markets. Progress can now be made much quicker than in the past, and emerging and frontier markets will be the biggest beneficiaries of this,” he said.
As many emerging markets reach a tipping point of US$6,000 (Bt188,000) gross domestic product per capita, he said this was the take-off stage.
“When incomes exceed the basic necessities, people put money aside to save for healthcare and for education and for retirement. When governments then put in place reasonable levels of state provision for schooling and medical care and pension schemes, that’s when suddenly domestic consumption expands very dramatically for a sustained period. It really is a classic bell curve – when they become developed economies, the rate of growth gradually slows again.
“This has enormous positive implications for emerging and frontier economies and for the businesses that participate in this growth.”
On China, he said it could expect heightened volatility in the transition from export to domestic consumption but the key was to pick those businesses that will thrive in the new environment and avoid those that will suffer from reduction in demand. Many businesses in China sprouted under the old model and, because of financial repression, already suffer from over-capacity, which will only worsen.
Despite the US plan to cut down bond purchases, he is optimistic of the situation after that.
He was recently in London and New York and observed a terrific pace of activity, as hotels and restaurants were packed and people spent liberally, driven by all the stimulus and the QE. In Japan, the benefit of “Abenomics” is not only about boosting spending and ending sustained deflation, but also bringing much-needed reforms that are seeing reserves and deposits and funds that have been tied up for much too long being released and becoming productive again.
“As long as it brings with it structural changes to attitudes and behaviour, then the benefits should continue to be felt even when the stimulus is wound down … If people remain positive and economic activity keeps growing, the benefits will keep flowing to places like Thailand.”
He recalled the situation in 2010, when markets were panicking about double-dip recessions. Now, they are fretting about tapering and the end of stimulus. He assured all that the global economy would comfortably leave this behind. “We’ll come through the tapering phase just fine – it will be a transition, and like any transition we should expect to see much greater volatility. The stimulus has repressed volatility to artificially low levels and that can only go one way – that is up – but in emerging and in frontier markets we’re in very good shape.”
A problem he envisaged is the structurally higher unemployment in developed markets. Technological advances mean productivity can be enhanced with less labour, allowing companies to show good margins and keep a lid on inflation despite stimulus. Now, there should be a strategy to get everyone participating in social changes.
“Inflation hasn’t materialised, and the main reason is because all the productivity gains have given us all this spare capacity, and so from an economic point of view it’s worked really, really well and repaired much of the damage of the global crisis.”