Why Colombia's Stock Market Beat China's

If you had any doubt about what Fareed Zakaria calls "the rise of the rest," consider a new Bank of America Merrill Lynch report on the performance of emerging markets over the past decade. If you had invested $100 in -emerging-market stocks on Dec. 31, 1999, you'd have $262 today, while $100 invested in the S&P would be worth $91.The most surprising thing about the study: tiny Colombia tops the list of performers, with a 1,529 percent return over the past decade. That's basically a commodities story (the South American nation is rich in coal, copper, and gold), and indeed, the huge global demand for everything from oil to minerals to agricultural crops (due itself in large part of the rise of developing nations) has made numerous poor nations richer in recent years.An even bigger surprise is that BRIC darling China actually underperformed its peers, rising only 150 percent compared with energy-rich Brazil (520 percent) and Russia (326 percent) or well...

In Praise of a Weaker Dollar

It's taken for granted that America enjoys a huge advantage from the fact that the dollar is the world's global reserve currency, representing more than 60 percent of the money held in central banks. The euro, a distant second, represents only 26 percent of reserves. But a new and contrarian report from the McKinsey Global Institute (MGI) calls that old wisdom into question.The Idea:  How could it be a bad thing to be the world's currency of last resort? "It makes the dollar much higher in value than it really should be, and thus hurts both exporters and American companies that compete with importers," says Richard Dobbs, an MGI director and author of the report. In the past it was assumed that the lower borrowing costs resulting from the dollar's favored position, as well as the benefits accrued from the ease of doing business in the world's most liquid currency, would easily offset this problem. Not so, says McKinsey....

China's Growing Gluts

Most people assume China emerged triumphant from the financial crisis: it's still growing 8 percent a year, is flush with cash, and didn't even feel the credit crunch, thanks to a trillion dollars in new bank lending in 2009. But the easy money has led to overconfidence, producing major industrial surpluses; China is making much more than it needs. A recent EU Chamber of Commerce in China report found that aluminium factories are operating at just 67 percent of capacity, and steel at 72 percent--yet Beijing is ramping up production. The same goes for green technology; the country uses only 70 percent of its available wind power, yet more turbines are on the way. All this could result in a destabilizing bout of global deflation as the glut of cheap Chinese goods drives down prices. Combined with another banking crisis--some experts expect 30 percent of new loans to go bad next year--the result could be both a slowdown in China and a global trade war.

Small Businesses Still Suffering

Small businesses create most of America's new jobs. But in the wake of the financial crisis, they're suffering considerably more than bigger firms--and their problems will likely keep unemployment figures high for some time to come. While small businesses tend to account for about half of all job losses in a recession, a new report by London-based Capital Economics shows that this time around in the U.S., they've been responsible for about two thirds of the employment drop--an unprecedented amount. The reason: lack of credit. Since October 2008 business loans are down by 17 percent and still falling. While firms of all sizes are feeling the pinch, small firms are much more dependent on bank loans than bigger ones, which can issue stock or debt to raise money.  ...

Dwindling Phosphate Supply Affects Food Crisis

None of the factors that drove the global food crisis in 2008 have gone away. Agricultural production is still tapped out, trade barriers are high, and demand, especially from emerging markets, is growing. Now there's an increasing worry over the availability of key inputs like fertilizer. You probably didn't know it, but the world is running out of phosphate fertilizer. All agricultural crops need phosphates, which are a key ingredient in the industrial fertilizers that have helped raise global yields in recent decades. But supplies of phosphate rock--90 percent of which are found in the U.S., Jordan, South Africa, Morocco, and China--are shrinking. Demand from China in particular is growing, driving the rate of phosphate extraction up from its usual 2 percent a year to some 7 percent last year. Academics at the University of Technology in Sydney believe "peak phosphate" supply could come by 2030. Already, the U.S. has been forced to import to meet its needs,...

Wall Street's Ego Bubble

Last week, we got more proof of Wall Street's utter disconnect from the rest of the world when Goldman Sachs's chief executive Lloyd Blankfein was quoted as saying he's doing "God's work." Apparently, he's also a "blue-collar guy" and "everybody should be happy" that he and his peers are on track to take home billions in bonuses this year. Blankfein's hubris generated disbelief among the foreign CEOs and government officials attending a Chinese business conference, put on by a Swiss outfit called Horasis, in Lisbon last week. "Do you think those quotes might be made up?" one Latin American participant asked. ...

China's Yuan May Strengthen Against the Dollar

Investors last week were buzzing about a report released by the Chinese central bank ahead of President Obama's visit to the country, which indicated that Beijing might once again be thinking of letting the yuan rise to reflect China's growing heft in the global economy. The report surprisingly omitted the usual language that Beijing would keep the yuan "stable at a reasonable and balanced level." The yuan's relatively low value is a key reason that Chinese exports remain so competitive on the global stage; it's also a reason for major trade imbalances between the United States and China, something that underscored the recent global financial crisis.  ...

American Hubris Is China's Gain

According to its CEO Lloyd Blankfein, Goldman Sachs is doing "God's work." This quote, care of the LondonTimes(though delivered in irony, according to Goldman Sachs) was met with bewilderment at a Chinese business conference in Lisbon last week, where foreign CEOs and government officials were dumbstruck by the hubris. Many of the attendees blame Wall Street bankers like Goldman for the global financial meltdown and think the U.S. is doing a bad job of cleaning up the mess. "Do you think those quotes were made up?" asked one incredulous Latin American participant. But America's diminished position in the world was even better illustrated by how quickly the Blankfein banter faded and talk turned to China's growing clout. Goldman Sachs itself is now predicting that Chinese GDP will overtake that of America by 2027. This year, China has surpassed the U.S. as the world's largest generator of investment capital, around $2 trillion compared to America's $1.4 trillion, according to...

6 Myths About China

The conventional wisdom is that China is steaming through the global financial crisis by building on the momentum generated by its 30-year boom. Indeed, ever since it sailed through the last big global crisis—the Asian contagion 10 years ago—Beijing has been feted for uniquely steady helmsmanship in financial storms. So perhaps it's natural for forecasters to assume that the Chinese supertanker of state is not turning sharply now, particularly since it continues to grow rapidly even as other economies sink in the recession. Yet this crisis is different—bigger and more damaging than any seen in generations—and it is exposing limits and forcing change in just about every key piece of the China model: the supremacy of the one-party state, the smart economic management, the export-driven growth, the emerging consumer class, the burgeoning private sector, the headlong focus on growth at any environmental cost, and the drive to build world-class companies. What follows is a look at why...

Fertility Rates of Rich Nations May Not Be Falling

One reason growth forecasts for rich nations are so grim is the common assumption that birth rates are falling. Fewer people will produce less income, and shrinking economies. Only the assumption of aging populations may be wrong, according to a recent report by Goldman Sachs that looks at key demographic trends for the 21st century.  ...

Big Oil Goes Green

Remember back in 2001 when BP went "Beyond Petroleum"? It was a brilliant marketing campaign, but it had less to do with changing the company's business model than positioning Lord John Browne as the Teflon oil executive. All but a tiny fraction of BP's revenue came, and still comes, from oil. So how should we take the spate of new green announcements from the world's major oil firms? In July, ExxonMobil announced big plans to grow green algae to fuel cars; last week, Chevron unveiled the world's largest carbon-sequestration project in Australia; and in recent months, Valero, Marathon, and Sunoco carried out a series of acquisitions that resulted in Big Oil controlling 7 percent of the U.S. ethanol business.The list goes on. And this time it's the real deal. It's not just that these projects involve bigger money, which will grow exponentially if new technologies work. That's still peanuts for oil majors, which put only 4 percent of their total 2008 profits into alternative-energy...

Sarkozy and Stiglitz: A New Way to Grow

While Barack Obama was busy yesterday telling Wall Street to shape up, French President Nicolas Sarkozy spent this morning criticizing the entire economic status quo. The key issue in question: how the world tabulates economic growth, or GDP. We’ve always known that the metric was flawed; since GDP is simply a measure of all economic growth, things like natural disasters, traffic jams, and urban violence (all of which put people and money to work even as they wreak havoc) can actually raise a country’s overall GDP. But never has anyone seriously tried to come up with a better way to calculate growth. Until now: at the behest of Sarkozy, a team of superstar economists, headed by Nobel laureate Joseph Stiglitz, have just unveiled some new ways to tabulate a country’s economic health. See below the dispatch from NEWSWEEK’s Tracy McNicoll, who attended the unveiling of the Stiglitz Report in Paris this morning:...

Women and the Economy: An Emerging Growth Market

It hasn't been easy to find a bright spot in the global economy for a couple of years now. Growth markets, once as numerous as no-interest mortgage options, have grown scarce. But in the last few months, economists, consultants, and other business types have begun to track the rise of a new emerging market, one that may end up being the largest and most powerful of all: women. According to a new study by the Boston Consulting Group, women are now poised to drive the post-recession world economy, thanks to an estimated $5 trillion in new female-earned income that will be coming on line over the next five years. Worldwide, total income for men ($23.4 trillion) is still more than double that for women ($10.5 trillion), but the gap is poised to shrink significantly because the vast majority of new income growth over the next few years will go to women, due to a narrowing wage gap and rising female employment. That means women will be the ones driving the shopping—and, economists hope,...

Stephen Roach on 'The Next Asia'

When Morgan Stanley Asia chairman Stephen Roach talks, people listen: his opinions on the global economy have been known to shape policy from Beijing to Washington. For years, as the bank's chief economist, he was one of the Cassandras of the global economy, warning boom-day investors to be wary of the imbalances that eventually led to the financial crisis. Now, as its top executive in Asia, he's got a new book, The Next Asia, out this month. The warning this time: while Asia is rising, the coming power shift from West to East won't be as easy as everyone thinks. "It's a myth that the baton of economic leadership is being seamlessly passed to the BRICs, in particular China. My premise is there is still a lot of work to be done," says Roach.  ...

Eastern Europeans Need to Feel Obama's Love

It will come as little shock that European support for Barack Obama’s handling of foreign affairs is quadruple the rate given to his predecessor, George W. Bush, according to the German Marshall Fund’s Transatlantic Trends survey, released yesterday. What is surprising is just how much more bullish on Obama Western Europeans are than their eastern counterparts. While 86 percent of Western Europeans view his policies favorably, only 60 percent of Eastern Europeans feel the same way. The differences become even more pronounced when broken down by country. Ninety-two percent of Germans and 88 percent of the French think the U.S. president is doing a bang-up job (approval ratings that are "off the charts," according to study director Zsolt Nyiri), but only 55 percent of Poles and 58 percent of Romanians do....

Good News From The Financial Crisis

Here’s a rare bright spot as a result of the global financial crisis. The World Bank’s Doing Business Report, which tracks how easy or hard it is to start new businesses in various countries around the world, is just out today, and more countries than ever are slashing red tape around starting businesses. Even as governments are getting more heavy handed in regulating banks and financial institutions, they are lighting things up for entrepreneurs – government reforms aimed at making it easier to start a company are up 20 percent this year, the highest jump since the survey started in 2004....

Creating the Chinese Google

Back in 2002, Chinese billionaire Li Ka-shing, Asia's most successful entrepreneur, founded the Cheung Kong Graduate School of Business in Beijing to turn out a new kind of Chinese global leader. Cheung Kong has since become the country's top business school, with graduates like Alibaba chairman Jack Ma and CNOOC president Fu Chengyu. Here the school's dean, Xiang Bing, tells NEWSWEEK'S Rana Foroohar why China needs to move beyond entrepreneurship. ...

China's Economy Will Surpass Japan's This Year

During a recent trip to Japan, New York University economist Edward Lincoln was surprised to find executives at Toyota wringing their hands─not about sales, which were down 27 percent since the beginning of the year thanks to the global recession, but about their new position as the No. 1 automaker in the world. They nabbed the top spot last year after GM imploded. But Lincoln says that the Japanese automaker has come to realize that being the top dog means that you have to set the agenda for the rest of the industry, and also fend off all the people trying to knock you off the podium─a tough spot to be in. ...

Iran's Real Problem -- The Economy

Political infighting in Iran heated up yesterday when some of President Mahmoud Ahmadinejad’s conservative supporters warned him that he might not get a second term in office if he doesn’t start towing the line. The warnings came off the back of a tiff over the last couple of weeks between Iran’s Supreme Leader Ali Khamenei and Ahmadinejad, in which the former warned the president to get rid of his right hand man, Esfandiar Rahim Mashaie, who was perceived as being a bit too friendly towards Israel. The president ultimately bagged his number two, but only after taking his own sweet time – a slight to Khamenei. ...

Death of the Dollar Redux

I want to respond to a reader who commented on yesterday’s post about the possibility that the U.S. dollar might be replaced by a new type of currency known as an “SDR”:...

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