Investors baffled with their future investments among Developed and Developing Economies
Author (Saeed Ahmed)
The main issue in the current economic scenario that really worries the future investors is the fact whether to invest in the developed countries or the developing nations. The recent recession which had a devastating effect on the world economy is the major factor which puts the investors in dilemma for their future investments. As we all know that most of the developed nations in the world like United States and United Kingdom were dominantly influenced by the latest downfall. In case of US whose economy was extremely disturbed by recent depression and is in a way responsible for the collapse of the global financial system, due to the crash of its biggest banks such as Lehman Brothers etc.
The last quarter of 2009 showed an improvement in the annual growth rate in the US economy. This advancement provided the investors with little hope that the US economy was entering into the period of recovery contemplating the business life cycle model. Unfortunately this didn’t last too long according to the financial and income statements provided by the United State Government. The first quarter of 2010 demonstrated a fall in the annual growth rate which is a very dreadful indication considering the economy has just entered the stage of recovery. This current situation of the US economy has left the future investors in greater complexity.
On the contrary developing nations such as China and India has been doing pretty well in the meltdown. Although the recession did affect these countries but they were able to bounce back more rapidly as compared to the developed nations who are still struggling to recuperate from the downturn. In case of China which is well known for its manufacturing and is one of the leading countries in relation to its exports. It has been predicted to be the largest economy in the world by 2020. Rate with which the Chinese economy is booming i.e. 10.3% is believed to be very high and could eventually lead to its demise.
In the last quarter of 2009 there was a 17.7% increase in China’s export, which was more than that of Germany who was the leading exporter of that time. China has been flooding its markets with cash such as bank granting loans on low interest rates. The main concerns for the Chinese government momentarily are climbing growth rate and enormous cash injection into the market with low interest rates. China’s economy is in the midst of the boom phase in the business life cycle and if it continues to thrive at the current rate this can penetrate its economy into the decline phase which will ultimately lead to its fall. This depiction of China’s economy puzzles the investors further about their future investments.
Despite the fact that the current state and the future prospects of the US economy doesn’t look too appealing for investments. However we cannot ignore the history of the United States when we go back and look into the era of the so called ‘Great Depressions’ in the years 1930, 1960 and 1970 respectively. These periods were suppose to be the worse downturn faced by US ever in the history of world economy. Nevertheless the United State’s financial system did recover and went ahead to be the world’s leading economy in the time of 90’s and so on. Therefore it can be illustrated from the past that US economy does have the potential to get back and in fact can be at the top again.
As far as future investments goes it is a prediction game and does involves a lot of risk. The most sensible way by which investors can reduce the risks engaged is by diversifying their range of investments into both parts of the world. Executing some of their investments in the developed nations and some in the developing economies will eventually secure their investments by spreading the risks. If they suffer a loss from any one of the economies due to the changes in the business trends they would be able to break even from the other economy or could also make a profit.
Analysis and Interpretation By,
Saeed Ahmed
