Global families

GLOBAL INVESTOR 1.07 Lead — 17
Burkhard Varnholt: In the “basics” area, I expect the whole
security market to take off. I think we are still fairly early into the
game. In the “enrichment” area I favor two themes: one is the
whole healthy living issue, which we have been talking about since
the beginning of this year. And, secondly, the consumer electronics
story. I believe that we can expect major changes in the
consumer electronics area, which of course will have an impact
on countries like Taiwan and Korea, where a significant part of
the world’s electronic components are manufactured. And in the
“switching” area, I am very interested in the topic of outsourcing
and in the re-rating of emerging markets.
Giles Keating: I strongly agree. Perhaps in the “basics” area I
would add the whole infrastructure complex. For example we
can look to some of the German companies that provide products
like power generation equipment, railway technology or construction
equipment. And, in the “enrichment” area I would also focus on
health care, wellness and beauty.
How important is the re-rating of countries or companies in
regard to globalization?
Burkhard Varnholt: It is definitely a major issue. The business
revolution of recent decades has entered a phase where developments,
such as the outsourcing of knowledge work, the emergence
of new global brands and the economic and political transformation
of whole countries will lead to a re-rating of certain
countries. There is no justification for penalizing certain markets
just because they happen to be part of the emerging-market
community. Their stocks should be valued along the same criteria
as stocks in developed economies. After all, we live in a world
where an emerging market like China has transformed itself into
one of the world’s largest creditors.
Giles Keating: What Burkhard said about the re-rating of countries
goes as well for certain companies. As I mentioned before,
in the near future we will see the emergence of new global leaders.
Right now, some Asian companies in China and India are buying
or building global brands and, as these develop, there would be no
reason at all for these to be lowly rated.
Health care seems to be a good example for the changes
that globalization has brought about – would you agree?
Burkhard Varnholt: Absolutely. For example, there is a new
kind of health care tourism. There are clinics in India that specialize
in heart or in hip transplants, and their clients come from the
United States. I see advertisements for dentists in Hungary and
Germany in the newspaper every day. Globalization is about getting
the best – any time, anywhere.
Giles Keating: Some of the developments we are seeing
now could be explained by some of the early economic theories
of Adam Smith and David Ricardo. It is about comparative
advantage, the idea that it makes sense for people to specialize
at what they’re best relative to others.
We have talked about the dark side that globalization can
entail for individuals or families. Is there a dark side for investors
too?
Burkhard Varnholt: I think it is more about risks than dark
sides. And an investor can take precautions against most of the
risks we have been talking about.
Giles Keating: Burkhard is right. It’s critical to use asset allocation
to deal with those great challenges – but also take into
account the great opportunities. For example, the political risks
are substantial and there are security concerns across the world.
A large part of the last Global Investor Focus was dedicated to
this question. But an investor can take precautions against these
risks by putting some part of his or her asset allocation into the
security field.
Burkhard Varnholt: To give another example: the production
of energy is going to be a critical challenge for the global village.
But, for an investor, this also creates the opportunity to invest
in companies that deal with this problem. The same goes for
climate change, which is, unfortunately, one of the very dark sides
to globalization and industrialization. Again, an investor can take
precautions by allocating some parts of his or her efforts into
the water industry, which is going to be most affected by climate
change.
Giles Keating: The challenges for the individual or a family
and the challenges for an investor may look different at first
sight. But they have one very important thing in common as well.
It may sound like a cliché, but it is true nonetheless: where
there are risks, there are opportunities, and where there are challenges,
there are solutions. Investors have to be ready to seize
those opportunities.