3 Big Trends You Can Profit From

Investing is an uncertain business. Who could have foreseen the events at BP (LSE: BP), for instance?

And the story is often no clearer when it comes to those 'big picture' developments that shape the investing climate. Inflation -- or deflation? Growth, or a double-dip? In the past week or so, I've seen forecasts of all of these.

But periodically, the mists part, and it's possible to make clearer calls on trends that are set to shape investment prospects. And, of course, potentially profit thereby.

So here, then, are three 'big picture' trends that all seem very credible to me.

Booming China

I remain very bullish on China. And increasingly, the Chinese story isn't one of China as a workshop to the world, but of growing indigenous Chinese demand, and a full-blown Western-style consumer culture.

It's started to happen. Wages are rising sharply, which will fuel economic growth even more, as newly-affluent consumers splash out on consumer durables and better housing. In the last few weeks, for instance, a spate of strikes have brought several Chinese factories to a halt -- with workers only persuaded back to the assembly lines by wage increases of 20% or so.

Reading an interview yesterday with James Anderson, chief investment officer at Baillie Gifford -- and recently returned from yet another fact-finding trip to the Middle Kingdom -- there's no doubt that he continues to be enormously excited by the Chinese economy.

"I don't think we have seen anything like this in the last hundred years," he says. "It is the scale of China's internal market and the overall power of the economy that distinguishes China from India, Turkey or Brazil."

Nor is Mr. Anderson alone. Having retired, Fidelity's Anthony Bolton, of course, was famously persuaded back into the market by just those growth prospects. I may have lost the Foolish duel over the launch of Mr. Bolton's Fidelity China Special Situations fund (LSE: FCSS), but I can't help noting that it's up 5% since it began trading -- while the broader London market is down over 5%.

Gloomy UK consumers

Last week's Q2 GDP growth rate of 1.1% openly startled many economic commentators, coming in as it did at around double the expected level. But around 65% of GDP is driven by consumer expenditure, and post-Budget, it seems that consumers are markedly more downbeat.

Yesterday's household finance index release from Markit, for example, reported that household spending had stalled as consumer finances had deteriorated at their fastest since June 2009. Job security and pay expectations in the public sector, what's more, hit new lows.

"Households' pessimism about their future finances has returned to levels not seen since the economy was in freefall towards the beginning of 2009," noted Tim Moore, an economist at Markit. "The deterioration in household confidence follows a 14‑year record drop in service sector business confidence and will therefore raise fears of a renewed retrenchment of business and consumer spending."

The upshot of all this? To me, at least, it heralds a lengthy period of low Bank Rate, sluggish economic growth, and a torrid time for shares which depend on a consumer 'feel good' factor. I won't be adding a brewer to my portfolio just yet, for instance: already (for the most part) cheap, I expect them to get cheaper still.

Moribund Europe and America

What's happening with Europe? Not much, it seems. The banking 'stress test' hasn't achieved much, the euro is still mired in gloom, and little of the talk about sovereign debt in the so-called PIIGS has gone away. I'm confident the euro will survive, but I expect the present uncertainties to continue for many months yet.

America, too, is finding recovery it difficult. Unemployment remains at a national average of 10% -- much higher in certain states -- with the housing market looking ever-more precarious by the day.

Housing starts in June, for instance, fell 5.0% to an eight‑month low of 549,000, while manufacturing output declined by 0.4%. Manufacturing capacity utilisation fell back to 71.4%, close to the lows of the 2001/2002 recession, and hardly suggestive of an economy set to soar.

In short, investors looking for growth should look to emerging markets: European and American shares will remain priced at today's levels for a while longer.

At some point, it might make sense to switch out of emerging markets and into European and American shares, but there's no hurry yet, I suspect.