Although you wouldn’t know it from tuning into CNBC or opening the Wall Street Journal, the world is actually in a new “super cycle” of growth.
And although you wouldn’t know it from all the glum news out there, this new super cycle represents extremely low hanging fruit for globally minded investors.
You see, a super cycle is simply “a period of historically high global growth, lasting a generation or more.”
One example is the period between 1870 and 1913, the eve of World War I. Over this period, the global growth rate averaged 2.7% a year – more than 1% higher than the average for the previous 50 years.
Another super cycle took place from the end of World War II to 1973 and the oil crisis. This period saw average global growth rates of 5% – more than double the 1.7% average growth rate of the 1913 to 1946 period.
In each of these super cycles, investors flourished. There was no great genius involved. All investors had to do was recognize the trend and ride it for long-term profits.
The new super cycle is being driven by rapid growth in China, India and other emerging economies.
It will result in dramatic improvements in the wealth of these emerging nations and of the billions of people who live in them, as they play catch-up to Western living standards.
And according to a recent report by Standard Chartered Bank, average global growth rates in the current super cycle (lasting until roughly 2030) will be 3.9%.
The progress already has been breathtaking. As recently as 1980, China was poorer than Afghanistan or Chad. And it had half the per capita income of Niger or Ghana.
Just over 30 years later, China has overtaken Japan as the world’s second largest economy. And it is on track to become the world’s largest economy in the next decade or so.
3 Themes for Global Growth
Three themes of this super cycle to keep a close eye on will be:
1) Strong growth
2) Rapid urbanization
3) A growing middle class
Each theme has important investment implications. For example, strong growth in the emerging world will reset the world’s currency system.
The U.S. dollar will start to play a less important role on the world stage. And currencies such as the Chinese yuan (also known as the renminbi), the Korean won and the Indian rupee will rise versus the dollar.
I’ve already recommended you buy the WisdomTree Dreyfus Chinese Yuan Fund ETF (NYSE:CYB). And I continue to believe that this is a great way to play the coming new currency world order – one in which the yuan plays a far more important role.
Rapid urbanization will mean higher demand for commodities. In particular, demand for copper (used in building construction, power generation and transmission) will rise. So will demand for oil, as a fuel for transport.
I’ve also already recommended the United States Oil Fund LP ETF (NYSE:USO), as a way of tracking oil prices higher.
You can also play higher commodities prices through shares in Xstrata PLC (LON:XTA), which you can buy in London. Xstrata produces copper, nickel, zinc, and other metals in South America, Africa and southeast Asia.
Finally, the dramatic growth in the middle classes in the emerging world will drive its own set of investment opportunities.
There will be a huge need for banking, for instance. And rapidly rising consumption will be a big boost for companies in the retail, consumer products and health care sectors. One company I love is Brazilian brewer Companhia de Bebidas das Americas (NYSE:ABV).
AmBev, as this company is widely known as, brews Brazil’s best selling beer, Brahma. It is also PepsiCo’s bottler outside the U.S. As Brazil’s middle class grows, so will AmBev’s profits.
These are just some of the ways you can play the big boom in overseas growth that we’ll see over the next 20 years or so.
Stay tuned for more recommendations.