"This Time It's Different"
02/17/2006 12:00 am EST
Jeffrey Everett, portfolio manager forTempleton Global Equity Group, offered a keynote address at The World Money Show, offering an exceptional overview of why investors should consider global investments. Here’s his analysis of why "This time it's different."
"The phrase ‘This time it's different’ may be among the most dangerous words in finance. What does it mean when you hear investors say, ‘This time it's different.’ It usually means that they are trying to suspend the laws of finance. But just like gravity, the laws of finance are not going anywhere. Valuations—whether it be price to earnings ratios, price to cash flow, private market values— cannot be ignored. However, if you want to maximize your wealth, you need to look beyond the US for international opportunities. Because this time it really is different. Here’s why.
"Yes, the laws of finance haven’t changed. But the world in which they operate is changing radically, and positively. And because the financial landscape is permanently altered, opportunities for international investors are exploding. If you missed out on your chance to invest in Fannie Mae 30 years ago, now you get a second opportunity, by investing in mortgage finance companies in India. Did you pick oil stocks 30 years ago? Now is your chance to get into a new energy market— alternative energy.
"From a global perspective areas such as healthcare and finances represent investment opportunities that you don’t want to miss. Since 1985, over four billion people in China, Russia, Eastern Europe, India, Brazil, have joined the global economy. In the past 20 years, three factors—technology, capital markets, and demographics— have changed the landscape and created outstanding opportunities for long-term global investors. In other words, the international market is all grown up. That’s what makes it different this time.
"Technology has been hot for a long time. What’s different now? Take a look at who has the technology now. In Korea, 70% of households have high-speed Internet access. That’s much higher than the United States. In Russia, the number of cell phone subscribers was just three million in 2000. Today it is 125 million. Countries are building, and investors are buying. Technology is no longer emerging in these countries. It has arrived.
"Fans of Silicon Valley would be wise to consider that since 2002 over $41 billion has been invested in the Central Taiwan Science Park by the who’s who’s of technology. China is also poised to make its mark, pulling way ahead of the rest of the world in one key measure. Since 1997, China has graduated more engineers every year than the US, Japan, and Germany combined. Technology has been a major reason that these countries have joined the global markets.
"In emerging countries, capital markets are the tipping point. They can no longer be ignored. Early in a market’s life, you tend to see banking and utilities dominate a stock market, as these are often set up by the state. As these markets mature, they are pushed out into private hands, creating opportunities for us as investors. That’s what’s happening right now. Private enterprise has become the engine of growth for the world. In 2003, the private sector employed more than 90% of the people in emerging economies. And capital markets provide a way to capitalize on these outstanding opportunities. It’s no surprise that international stock markets blossomed over the past decade.
"The growth of capital markets in emerging countries is a move that we have already seen. So the technology is there, and the capital markets are now viable. And the third factor is demographics. The consumer base is growing rapidly, because half the world’s population is now making its full force felt. If just 10% of the population in China increased their wealth, that’s 120 million people bring new wealth to the global economy. China and India are undergoing those shifts right now.
"I like to approach investing with a health dose of skepticism. And the ‘skeptic in me’ is now saying words that I never thought would come across my lips— this time it's different. The international markets are grown up. If you haven’t yet, you should consider international companies. Now is the time. Don’t let fear keep you out of the game. It’s a very exciting time. And it’s also the right time to extend your investment opportunities beyond our borders in the United States."