Increasing demand from affluent workers in China is triggering the country’s factories to increasingly make goods for the home market at the expense of overseas economies.
One analyst fears the move could spark higher inflation in Europe and the US.
James Carrick, from Legal and General Investment Management, says s that the West has effectively ‘imported deflation’ by harnessing inexpensive labour in China.
He feels a decrease in the flow of cheap goods from China will make it more difficult for the Bank of England and the European Central Bank to reach inflation targets.
This could also mean the end of globalisation as well as higher interest rates.
MENA countries to deliver mean profits
Investors should be looking for profits from economies in the Middle East and North Africa (MENA), urge analysts at Baring Asset Management.
They say the region is enjoying healthy growth fuelled by a well-to-do and young middle class which has a growing appetite for consumer goods.
In turn, this generates business opportunities for companies who can meet the demand – and many of these companies are ignored by investment analysts.
Barings says there are growing opportunities for active managers to identify underpriced equities for investors.
The firm suggests investors should look closer at the United Arab Emirates and Saudi Arabia for attractive opportunities.
In Saudi Arabia, healthcare, consumer and telecoms sectors are worth investigating, as are companies involved in the country’s huge infrastructure building projects.
Barings also says that UAE has seen a strong economic rebound with strongly performances from tourism and real estate.
Korea and India ready for investors
With many emerging markets being put forward for potential investment, Credit Suisse says investors should pay particular attention to the prospects of Korea and India.
They say both countries have short and long-term investments which will deliver good profits.
Not only do both countries have young and growing populations, they also have good demographics which will ensure long-term growth for their economies.
The firm’s analysts also believe that both India and Korea have undervalued equities which bring good returns as well as strong corporate balance sheets to underpin future growth.
While acknowledging that emerging markets have performed poorly so far this year, Credit Suisse claims this is about to change.
They point to increasing inflation hitting some emerging markets starting earlier than expected, and the slow recovery in the US delaying growth in those countries, but reckons the emerging economies will overcome these hurdles and see high growth later this year.