A report on 'Global Trends 2030' contains a raft of forecasts that investors can put to use. Here are some key predictions-and how to use them without getting burned, writes MoneyShow's Jim Jubak, also of Jubak's Picks.
What do you, as an investor, do with predictions? Even well-researched predictions by experienced "predictors," like those behind the recently published Global Trends 2030: Alternative Worlds?
And most challenging of all, what do you as an investor do with predictions about which countries will grow most rapidly?
I think the default response-put your money into the financial markets in the fastest-growing economies-is actually wrong. Or at the least, the idea that "GDP growth equals market returns" isn't true, and it presents a trap you want to avoid.
Some Critical Predictions
Let me use some of the predictions found in this recent report to explain why I believe that, and how to put such predictions to use.
- By 2030, China will be the world's leading economic power-with the US second.
- The world's oil producers-especially Russia-will see their influence wane, in part because the US will attain energy independence.
- For the first time in history-as far as we can know-a majority of the world's population won't be impoverished. But half of the world's population will live in areas with severe shortages of fresh water.
- At least 15 countries will be at risk of state failure by 2030-Pakistan, Yemen, Afghanistan, and Uganda among them. Aging populations will slow growth even further in Europe, Japan, South Korea, and Taiwan. China and Brazil will have stepped up to new global roles, and Colombia, Indonesia, Nigeria, and Turkey will become especially important to the global economy.
Those are just four of the conclusions in the Global Trends report, a four-year effort by the US National Intelligence Council.
Some of the themes in the study-the economic rise of China and the rest of the emerging world, global aging, and a scarcity of water, for example-will be familiar to readers of my posts and 2008 book The Jubak Picks. (It's out of print but you can find it used on Amazon.)
In other areas-the risk of a computer network attack on global infrastructure that affects millions, or the possibility that a global health pandemic could reverse economic globalization-the study raised issues that I haven't thought about at any length (except in the occasional nightmare).
But to me as an investor, the most useful function of the study is the challenge that it throws down. What, if anything, do I as an investor want to do about these predictions?
Faster Growth Can Fool You
In some cases, I think the answer is relatively clear.
For example, in the case of global water scarcity, if the study is even just mostly correct in its predictions-and I think the evidence is remarkably strong in its favor-then you want to look for shares of companies involved in moving, purifying, conserving, and metering water. My most recent take on what stocks to buy on the water trend was in September (see "Water: Good as Gold for Investors").
I think responses to trends in the study-such as the growth of the global middle class and the rise in consumption of food and especially protein-are also relatively straightforward. Find companies that fulfill demand created by these trends and buy their stock.
But responding to other trends is harder-and in no case is it harder than with the very large trends in GDP growth during the period. What do you, as an investor, do about faster growth in China, Brazil, Colombia, India, Indonesia, etc., and relatively slower growth in Japan, Europe, and the United States?
The knee-jerk response is simple: You buy the markets of the faster-growing economies. You do it because economies with faster GDP growth show higher stock-market performance.
Very simple. And, current research says, very wrong. There doesn't seem to be much correlation between GDP growth rates and stock market returns.