As many of you know from my books and past articles, I see a major downturn for many countries in the years and decades ahead… including many in the emerging world.
Yes, demographic trends do favor almost all emerging countries, but I’m not big on their stock markets or economies because they’re so reliant on commodities. And as you well know, I see commodity prices falling until at least 2019, and likely more around 2023.
Emerging market countries are already suffering under the yoke of declining commodity prices since 2008. Just imagine how much worse it could get as those prices sink further and further.
The problem is, I keep hearing experts tout how great an opportunity emerging markets present for investors this decade. Really?!
Let me make this clear: There are three countries that I believe will utterly fail to meet the world’s expectation…
They are Germany, China, and Brazil.
Yep. The three that everyone seems to think are on the verge of taking over the world.
I recently saw a program on CNBC that looked at which countries would have the largest economies in 2039. Of course, China came in as number one. The U.S. came in a close second.
I don’t agree with that forecast either. In fact, I believe we’ll have exactly the reverse situation, with the U.S. remaining the largest economy.
Economists really don’t have a great track record on things like this! Their last bold forecast was in the late 1980s when they saw Japan surpassing the U.S. economy by 2010.
At the time, I saw things very differently. Today, Japan is only about 33% of our economy. So much for taking over the world!
My forecasts are different — more accurate and reliable — because I use solid, projectable indicators that are based on the most important, fundamental trends. I don’t just make straight-line extrapolations of the past. I understand that growth is exponential AND very cyclical.
That’s why I absolutely disagree with economists’ latest prediction on major gains for Brazil.
Brazil’s stock market is not upbeat. It’s down 38% (as of the lows in August) from the last Bovespa peak at around 72,000 in late 2011.
Economists see Brazil as one of the leading BRICS (Brazil, Russia, India, China, and South Africa)… a demographic powerhouse. But demographic, urbanization, and commodity-price trends say Brazil is more a has-been than a will-be.
I have four reasons to believe Brazil won’t be as hot as economists forecast.
First, developed countries are already largely urbanized, so technology cycles and generation cycles in productivity and spending are important. But for emerging countries like Brazil, the rate of urbanization is the most important trend, then commodity prices, then workforce and demographic growth.
Most emerging markets have a rapid rate of urbanization. This brings an increasing stream of new higher-earning consumers into the economy as they move off their farms and into the cities.
The problem for the likes of Brazil, and almost all of South and Latin America, is that they’re already highly urbanized. Brazil, with the largest cities in South America, is the most extreme. It’s already 87% urban. So most of the consumers that can enter the country’s economy are already there and spending what they can.
Second, despite Brazil’s level of urbanization, its per capita income is just over $10,000… and that’s after adjusting for higher purchasing power there, thanks to lower costs of living.
And third, since emerging countries don’t have anywhere near the high-paying managerial, professional, and technical jobs that developed countries enjoy, their earning and spending by age is much less pronounced.
I’ve found that projecting workforce growth in emerging countries is a better indicator than my Spending Wave, with its 46-year lag for peak spending in developed countries.
When I first saw this chart several years ago, I realized that Brazil, and most emerging countries, are never going to be as rich as we are. The chart shows Brazil’s workforce growth projections for the next several decades.
It’ll be the first major South American country to peak and plateau between 2025 and 2035. Mexico and most of the rest of South America peaks more around 2040.
See for yourself…
The next 10 to 15 years will see only about a 15% increase in Brazil’s workforce and little or no advance in per capita income.
Demographic trends are Brazil’s only advantage, but they’re not that strong and don’t go on for very long. Clearly, Brazil is an aging giant, not a country like India with growth trends for decades into the future.
But the biggest problem I see for Brazil (and the fourth reason I don’t believe it will be as hot as all that) is falling commodity prices.
The stock markets and leading industries of most emerging countries revolve around commodity exports and the financial institutions that finance them. The countries’ stock prices correlate most with commodity prices as higher prices mean more exports and bigger profit margins.
I monitor a commodity price cycle that peaks like clockwork every 29 to 30 years. That cycle peaked in mid-2008, rallied into early 2011, and has been falling again ever since. And it doesn’t turn up again until around 2023. By then, Brazil’s demographic growth will be plateauing.
For Brazil and many emerging countries, falling commodity prices will hurt their growth, exports, and stock markets for the next decade. After that, three of the BRICs — China, Brazil, and Russia — will have falling workforce growth to contend with.
These guys just can’t catch a break.
But they’re not down and out. Emerging countries will be the best place to be after we see the great deflation and we enter the next global boom, which I forecast will happen around 2023 forward. I’m talking places like India, Southeast Asia, Mexico, and Turkey.
That means, for now, don’t count on Brazil to make you millions. There are other, better places to look to for that.
|Follow me on Twitter @HarryDentjr|
Ahead of the Curve with Adam O’Dell
A little more than a decade ago, Wall Street brought to the world an acronym that won’t soon be forgotten: BRIC — Brazil, Russia, India and China. These four countries were targeted as the best prospects for investment growth, thanks to their world-average beating economic growth.