Investors who see gloom everywhere they look are probably not looking far enough afield. To be sure, there won't be solid GDP growth in the United States or the eurozone over the next few years. As Europe deals with its debt crisis, austerity measures will slow growth.
In the United States, the November elections will determine a great deal about how we handle the fiscal cliff looming at the end of 2012. But whatever happens at the polls, the economic problems for President Obama or President-elect Romney will be difficult to handle, and almost all actions needed are sure to result in slowed economic growth.
We predict U.S. GDP will be up no more than 1% through the end of 2013. And we see the eurozone facing years of sluggishness, with GDP flat, if not down, for 2012 and 2013. Pick your poison. Neither economy offers much of a return for investors, especially on a risk-adjusted basis.
But emerging markets will be a different story. We expect certain emerging markets to have significant, sustained GDP growth as domestic and international financial institutions are enticed to supply money. While not all emerging markets have eased their monetary policies, we believe that a majority will do so, following in China's footsteps.
While some emerging markets may encounter reduced foreign direct investments as developed nations' banks and financial institutions deal with their own fiscal issues, this should be offset by local demand for financing in nations shifting to consumer-driven economies. Already this year, we have seen strong GDP growth in certain emerging markets despite poor performance in the rest of the world. For example, nearly all of the emerging markets we follow have outperformed the MSCI World Index, which consists of only developed markets.
Emerging markets are some of the world's most dynamic and fast-growing economies. Some of these markets are already transforming the global economy; others offer the potential for significant growth in the coming decades. Looking forward, we believe investors should focus on emerging markets and certain commodities, which should outperform the U.S. and Europe.
Dawn Bennett is founder and CEO of Bennett Group Financial Services in Washington, D.C.
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