Asia’s in love with America. I’ve asked English speaking kids on the streets of Shanghai, China; Bombay, India; Bangkok, Thailand and Singapore where they would love to go to college if cost weren’t a consideration. Without a moment’s hesitation, they say America. Among the young Koreans I’ve asked, the answer’s practically an involuntary reflex. Few things excite them more, it seems, than the land of stars and stripes.
Ask these young Asians what their favorite products and shops are and you’ll hear names like Starbucks, Coach, and Apple. Their favourite actors and singers? Mostly American. Favorite movies? Hollywood blockbusters. Bollywood films and a few Korean crooners are making a few ripples, but young Asians still covet—with unbridled enthusiasm– nearly everything American. I’m not a tourist who did a quick weekend survey. I’ve lived in Asia for a decade, I teach at a school in Singapore, and I question young people during every Southeast Asia vacation I take.
This is why, I believe, Americans shouldn’t toss large sums of money at Asian stock markets. The growth in the Far East economies could ignite the U.S. stock market, leaving the stocks of the emerging Tigers in the dust.
That might sound like a strange assumption, considering Asia’s rapid GDP growth compared to America’s. But economic growth and stock market profits don’t necessarily go hand in hand.
The World International Bank has data on Emerging Markets as early as 1985. Emerging market economic growth has run circles around America’s corporate fattening, but still, the data doesn’t lie. From 1985 until February 6th, 2012, the U.S. stock market returns have beaten the aggregate returns of the Emerging Markets. From 1988 to 2008, South East Asian countries increased their real GDP by 386 percent, compared to just 172 percent for the U.S. Yet America’s stock market produced higher profits for shareholders during this period.
Numbers from the World International Bank’s International Finance Corporation reveal that $100,000 invested in the Emerging Market Index 26 years ago (in countries like China, Brazil, Thailand, and Malaysia) would have been worth $1.08 million by 2006. The same $100,000 invested in the stock market of the slower growing U.S. economy would have exceeded $1.3 million. Since 2006, the gap has narrowed, but it hasn’t closed. The U.S. market has been less volatile over the short term, and more profitable over the long haul.
But there’s another reason to put faith in the U.S. markets. As Asians grow more prosperous, their appetite for America’s brands (especially high status brands) grows stronger. The U.S. based research firm, Harris Interactive, recently polled 9,222 adults in Asia, Europe and the U.S. to find that 74 percent of adults in India and 72 percent in China suggested that brands were important to them, versus just 26 percent in the U.S.
And many of these brands that Asians are so loyal towards are American. With a proclivity towards American (and other Western) brand names, Asian sales will drive U.S. corporate profits, benefitting American shareholders. Examining GDP data in South East Asia shows that 2011 growth is projected to run between seven and eight percent.
But those GDP growth figures pale compared to the escalating thirst for America’s products in Asia.
According to a recent Bloomberg news report, General Motors likely increased its unit sales in China (including a 2011 estimate) by 36 percent since 2010. Currently, the company has 17.9 percent of the country’s passenger car market, compared to just 5.92 percent for Toyota.
Coca Cola’s brand is strengthening on Asian demand, as its 4th quarter Chinese sales volume increased 10 percent.
Then there’s Apple. If you think their products are popular in the United States, take a look at Asia’s addiction in their latest 10K filing. Net sales increased 174 percent in 2011 to $14.3 billion, tripling the increase in American sales, which rose 56 percent.
Net profits drive long term stock prices, and the profit growth of America’s businesses in Asia are rising at startling rates. Starbucks’ latest quarterly report saw same store sales increase by 20 percent in the South East Asian region, more than doubling the comparable sales growth in the Americas.
Asians, it appears, love American products—especially the higher status items denoting wealth, and yes....America itself. And with such a devoted brand conscious group, they won’t likely be jumping as enthusiastically into non-Western products anytime soon.
Where’s the greatest stock market growth going to be during the next 20 years?
Perhaps, in your own back yard.