The last decade has been a rather eventful one for investors. Notably, it has included the worst global recession in living memory, with the pain and losses of the credit crunch still inflicting a number of developed economies across the globe. In addition, it has witnessed the emergence of China as the world’s second largest economy and, while there have been fears surrounding its future growth prospects of late, China’s economy is now over 4.5 times larger than it was in 2005.
That’s a staggering rate of growth and, while it may not be repeated in future, it seems likely that China will continue to grow at a much faster rate than the US or European economies during the next decade. Clearly, it is undergoing a transition from a capital expenditure-led to a consumer expenditure-led economy which could dampen its growth numbers in the next handful of years. But, realistically, it is likely to cement its place as the second largest economy in the world and continue to reduce the deficit to the US economy over the next ten years.
However, that’s not to say that the US economy will disappoint. Its financial system is in good shape after major bank recapitalisations, a sustained loose monetary policy and the Federal Reserve’s monthly asset repurchase programme. While interest rate rises may act as a brake on its economic performance, the lower cost of commodities looks set to continue and this will help to grease the wheels of the world’s largest economy in future years. Furthermore, with the US gradually reducing its dependence on oil, it would be of little surprise for it to record more stable economic performance in future years.
Europe, though, may endure another ‘lost decade’, with its financial system seemingly being less geared towards wealth creation and economic growth than the likes of the US and China. Take, for example, interest rates. In the Eurozone, it is a case of ‘one size fits all’, but because the single-currency region is made up of multiple member states, they are likely to require a different stance on monetary policy at different times. As such, they are constantly compromising, rather than optimising, their policies. And, with labour laws arguably making free enterprise more difficult than elsewhere in the world, Europe may find itself struggling to keep pace with the Americas and Asia in the coming years.
In terms of the sectors that could be the top performers in the next decade, ‘efficiency’ could become the buzzword of the period. In other words, those industries that are able to offer people greater efficiencies in their lives could be major winners, since the world’s population is set to keep rising and migration towards cities across the globe is showing little sign of slowing down. As such, competition for space and resources is likely to increase.
Therefore, cleaner fuels, consumer goods which add value to the end user (rather than pure ‘luxury’) and products and services that allow people to do less but yet achieve more could be the most profitable spaces in which to invest. Examples could include the internet of things, driverless cars, more intelligent social media, as well as efficient construction, mobile banking and transport businesses.
Clearly, predicting the future is impossible. However, with a recession of the magnitude of that experienced in the last decade seemingly very unlikely to be repeated in the next ten years, investors should look ahead with a degree of confidence to the next decade. Certainly, there will be challenges ahead but, overall, investing now in a range of high-quality companies for a period of ten years should prove to be a very wise move.
