01.24.08
What will the Arabs, Chinese and Japanese do with their $Trillions?
With over $2 trillion in reserves and talk of diversifying out of the US dollar, where will the cash rich Arabs, Chinese and Japanese put all their money?
In the short term, few currencies have the depth to absorb such large amounts of money.
A fair bet would be Euro, Swiss Franc, Sterling, Gold (I refer to Gold as a currency which is what it is rather than as a commodity which many people think it is,) Yen, and Yuan.
In the longer term it will get spent on real assets (holding large amounts of paper is hardly the point - whether your an individual, company or national government - particularly given that almost all the other central bankers are almost as guilty as Greenspan (bubbles) and Bernanke in overheating their printing presses.)
The largest chunk will be spent locally on infrastructure - water, electricity and real estate in both asia and the middle east. Of that which is invested abroad, more will be invested in Asia which has higher growth than Europe/America.
China will continue to make even more strategic purchases that give it access to raw materials (energy, metals and agricultural) and food (already demand for meat is putting pressure on grain production) across the world (it is far cheaper than supporting 12 carrier groups and men in dozens of countries). We are feeling the impact of their cheque book diplomacy here in Africa and it is much more productive than the gunboat and other forms we’ve had over the past few decades.
China will also continue to buy companies that have manufacturing assets and/or technology which it cannot easily duplicate at home.
A lot is already being spent on global real estate from Manhattan to Mumbai, and I expect that A class properties in leading cities will continue to deliver strong appreciation (and low yields) as Middle Eastern and Asian buyers remain active.
Middle Easterners are investing heavily not just in stocks, but also buying the stock markets and hedge funds. I believe this will continue (though I suspect that more money will be lost here than is being lost to bernankes printing presses.) Though again I suspect that even though US/European markets will get their fair share, Asian and emerging markets will get a share disproportionaly larger when divided by their GDP. A couple of years ago I would have described their acquisitions as a lot more strategic. But these days I struggle to be able to say that.
So when planning your portfolio for the year, think about buying some of things that you can sell on to the Arabs, Chinese and Japanese once they start buying.