The iron laws of demographics will slow the growth of the developed world.
Nowadays I keep a substantial proportion of my portfolio outside Britain. That's not just because I for I prefer to avoid being too heavily exposed to one country but also because I believe that prospects in the developing world have improved in the last few years, at least relative to the UK.
The reason for this is that their economies haven't been buried under a mountain of public and private sector debt, which we're still struggling to come to terms with.
Debt strangles growth
In the past couple of decades most of the developed world, with the notable exceptions of Australia and Canada, took on far too much debt, in large part because of profligate governments, housing booms and the need to rescue many major banks (which was because of the excessive mortgage lending which fuelled the boom in the first place!).
My colleague Morgan Housel wrote last Monday about the effect that this is having upon the American economy which is growing at a far slower rate than would normally be expected at this point in the business cycle because consumers and companies are choosing to reduce their debts rather than spend and invest.
We need only look at Japan to see a stark reminder of what too much debt can do to a country, since the Japanese economy barely grew during the "lost decade" (from 1991 to 2000) as it laboured under a mountain of debt. Japanese investors have had a terrible time after the Nikkei index peaked at 37,189 and today it is still some 73% down on this value.
Less debt, better prospects
By and large the developing countries don't have the same debt problem. They avoided a debt-fuelled housing and consumption boom, instead choosing to spend on investment and infrastructure projects so as to increase their future productivity.
These countries should continue to experience high economic growth rates for many years to come. So British investors should consider putting some of their portfolio into these emerging markets because that's where much of the world's economic growth is going to come from in the next couple of decades.
British companies are already there
Many British companies are big overseas investors and as a result already get a substantial proportion of their income from the emerging markets. You may be surprised to know that in 2010 about 53% of Unilever's (LSE: ULVR) revenue came from emerging markets where sales grew by 10.2%, compared to just 1.4% in Western Europe.
One of Unilever's bigger subsidiaries is the Indian company HindustanUnilever. Of all the emerging markets, I prefer India taking the view that by 2050 it, rather than China, will be the biggest economy in the world.
But instead of buying shares in Indian companies I to delegate this task to a manager, so I own shares in investment trusts like JPMorgan Indian (LSE: JII) and I use Templeton Emerging Markets (LSE: TEM) to cover the rest of the world.
The elephant in the room
One topic which our politicians try to avoid talking about is the massive liabilities that the state has accrued in respect of the future state pensions and healthcare costs which will be incurred for those of us who are still working. These costs are going to substantially increase public spending in the future, particularly because we're living longer whilst birth rates are falling.
The Office For National Statistics recently reported that the average Briton is 39.7 years old, up from 37.9 in 2001. Whilst we have some way to go to catch Japan, where the average is 44.8 years, the iron laws of demographics mean that this figure is going to relentlessly creep up over the next few decades, pushing up our costs and thus our taxes in the process.
I reckon that a future government is highly likely to partially default upon some of these promises, as we've already seen with the increases in the age at which the basic state pension is paid and the rate at which public sector pensions increase. The alternatives are higher taxes and/or higher borrowing, both of which will stifle the economy.
In contrast the emerging market countries generally don't have this problem because they have much lower average ages and have promised fewer state benefits. China is the big exception to this rule because its one child policy has skewed its demographics. That's yet another reason why I prefer India!
More from Tony Luckett:
> Tony owns shares in JPMorgan Indian Investment Trust, Templeton Emerging Markets and Unilever.