One of the most worrying consequences of the financial crisis is that most developed economies are now mortgaged to the hilt and this lingering fall-out has significant implications for long-term growth prospects.
Respected industry commentators such as Anthony Bolton have looked into the tea-leaves of late and come to the conclusion that a combination of consumers rebuilding their balance sheets, slower credit creation in this upturn than was historically the case and governments being forced to cut spending or increase taxes will lead to lower growth than before the crisis.
As a result, Mr Bolton is relocating to Hong Kong so that he can manage a new fund for Fidelity, due to launch next year, investing in China. Which begs the question: where should investors look for growth if not in their home markets?
Should emerging markets, which have always been a minority allocation in portfolios, now be given a greater weighting?
Certainly, governments and banks in areas such as south-east Asia appear to have handled the crisis with more aplomb than western economies.
Their willingness to take decisive action to stimulate growth from internal sources and to compensate for a fall in exports has been encouraging. Large infrastructure spending programmes, tax incentives, interest-rate cuts and cash handouts have all helped to shelter them from the worst of the storm.
Indeed, Allan Liu, portfolio manager of the Fidelity South East Asia Fund, has pointed out that corporate performance has improved to such an extent that the number of forward earnings upgrades now exceeds downgrades.
Countries with strong domestic markets, rather than export-led economies, will continue to become attractive.
Consumer demand in several countries has been virtually unaffected by the wider global turmoil and many Asian nations are sitting on substantial foreign-exchange reserves and robust trade balances, which gives them far more room than the west for manoeuvre if the global climate worsens again.
So there is an argument for a serious reconsideration of asset allocation.
Some are suggesting that portfolios should have a majority of their holdings in markets which can supply higher growth and, while the global economy rebalances itself, this outlook may have some merit.
The danger, of course, is that if investors adopt this position en masse there is the risk of creating another asset bubble.
Investing overseas is viewed as being higher risk than investing in the UK by the regulator. On a typical one-10 risk scale, an investment in the UK would be viewed as a five-six, whereas investing in the Far East is deemed to be an eight.
As most people have almost total exposure to the UK economy in the rest of their lives, through employment, property and banking, it is something of an anomaly that they are led to believe they are increasing their risk by investing overseas when they could, in fact, be reducing it and benefiting from more realistic profits.
Courtesy of The Press & Journal, 14 December 2009.
