Shift of power sees the east deliver on promise

AS THE dust settles on the extraordinary events witnessed in investment markets during 2008 and 2009, the financial pages continue to be dominated by the after effects of banking crisis, credit crunch and recession.

It is easy to overlook the fact that events in the west accelerated the shift of economic power from west to east. It is now clear that the banking crisis was confined to the US, UK and parts of Europe. The further we travel from the UK and US, the less the effect was.

I have been advising clients to invest in emerging markets for many years. The day of G7-developed economies has passed. G20 is now more important.

China's gross domestic product (GDP) has overtaken that of Japan to make it the world's second largest economy, and it is predicted to overtake the US by 2030. China could become the driving force behind world economic growth, as the US was throughout the 20th century. Emerging economies, Asia in particular, are no longer reliant on cheap exports to the west. Growth is driven by urbanisation and burgeoning middle classes with rising disposable income. Saving ratios are high and banking systems robust. This excludes Japan, where aggregate debt is in excess of 100 per cent of GDP, compared to a mere 50 per cent in the UK!

Even in the depths of recession, in the first quarter of 2009, China and India were producing annualised growth of more than 6 per cent.

The end of this month sees the launch of Fidelity China Special Situations. This will be managed by Anthony Bolton, of the world's most successful fund managers, who has spent two years researching the market.

When a world-class fund manager of Bolton's stature is launching a new investment in a major market, we should pay attention.

Russia needs oil at $70 a barrel to balance the budget. Oil was never going to stay at $30 a barrel any more than it was going to linger at $145. Russia holds a large part of the world's natural resources and has $400 billion earmarked for infrastructure spending. High infrastructure spending is a common feature of emerging markets.

Eastern European countries which have recently joined the EU offer excellent growth prospects as the demise of communism allows people to develop their work ethic.

Overall, investments should be spread between different fund managers and markets, looking for managers who do their research and pick stocks correctly.

It is time to revise investment strategy to recognise that the best investment opportunities are often in the east.