Hi Robin

I think your analysis is backed up by share recommendations.

Recently, all share tipsters have advised shareholders to avoid mid-cap shares (typically national based companies with a focus on the UK for instance) and instead opt for large multi-nationals which have a large investment in the emerging markets.

And the big shares have out performed the mid shares by a large margin over the past 6 months.

This means that there is share holder support to maintain (even divert a larger share of investment) into emerging markets.

The other question I have is to do with the hidden FDI of ex-pat workers sending money home.

In some countries this repatriation of cash is larger than the FDI.

And, there is every chance that this hidden FDI will continue.

I also believe that this is on reason why many of these countries work on a cash basis - because relatives working in Spain, UK, Germany etc... send cash home via Western Union or a similar mechanism.

The cash arriving at the home country is simply withdrawn and stored under the matress until needed (to buy a house for example).

I don't think this hidden FDI will be affected either.

Cheers
Neil

Interesting article Robin. I agree that FDI probably won't be affected for the reasons you outline and also because if companies are looking to cut costs in the current climate then they will look at outsourcing to cheaper areas of the world.

What you haven't touched on in a big way is the potential impact on CEE countries of a fall off in export demand. A very significant proportion of GDP is made up of exports to Western Europe so if these economies fall off a cliff then there could be an impact. On balance I don't think the picture's too bad, particularly in the medium term.

Guys

Here's an interesting thought raised by the economist...

40% of Romania's FDI comes from another emerging market (Czech Rep)!

A lot of Indian companies are buying up West European ones.

Sovereign funds are buying up American banks.

Chinese companies are buying car makers in W. Europe.

How strange is that?

Interestingly, it certainly doesn't fit with the 'US and W. Europe slow down leads to a drop in FDI' - instead suggests that the FDI baton will simply be passed over to the emerging market global giants - instead of the developed world giants?

True? Not true? Or partly true?

Cheers
Neil

Hi Neil

My answer to your question is option 3: partly true.

The huge surpluses in China, the Arab states, Norway - and basically anywhere that has oil or gas - are going to make a difference, and hopefully bail out the world's biggest economy by refinancing it.

Similarly, they'll put money into CEE, so driving the economies there.

But, I don't buy into the idea that the big emerging powerhouses can go on at a blistering pace without good growth in the world's biggest (by far) economy. It may take a little longer, but they'll slow too - after all, who is going to buy their exports if their biggest customers are busy tightening belts?

Judging by the global - and not decoupled - reaction of equity markets, traders of stocks think this way too.

Even so, the big difference this time round are these mountains of reserves those exporting emerging economies and oil rich countries have to hand.

The figures in these so-called sovereign funds - basically chunks of surplus government money for investment - are truly mind boggling, according to the Economist, as you'll have seen.

Abu Dhabi $875 billion
Norway $380 billion
Singapore $330
Saudi $300 billion
Kuwait $250 billion
China $200 billion


....and so on. A total of $2.9 trillion!

And China has only just started - it still has some $800 billion in cash or bonds sitting around. It's just dipping a toe in the water of higher returns investments.

And all this cash has got to be invested somewhere!

Puts things in some perspective, to me, at least.

Cheers