Super-Cycle Growth Opens World of Opportunity for Latin American Investors Standard Chartered Private Bank is the private banking division of Standard Chartered Bank Here for good
Standard Chartered Private Bank 2 Standard Chartered Private Bank: Latin Americans Are Riding an Economic Wave and Leveraging the Corridors to Asia Latin Americans are rapidly becoming global investors. Historically seen as risk averse relative to their peers in North America, Latin American private investors are now among the leading prospective beneficiaries of the current economic super-cycle, the third in almost 150 years. 1 This super-cycle is driving rapid increases in trade among emerging markets and for Latin Americans, significant new investment opportunities in Asia, Africa and the Middle East. A super-cycle, as defined by Standard Chartered Bank economists, is a period of historically high global growth lasting a generation or more. It is driven by increasing trade, high rates of investment, urbanisation and technological innovation, and characterised by the emergence of large new economies first seen in high growth rates across the emerging world. The current super-cycle will bring ten-fold growth in the global economy, from US$32 trillion at its onset in 2000 to US$62 trillion today and US$308 trillion in nominal terms by 2030. (Chart 1) Chart 1: Scale and perspective size of the world economy today and in 2030 US$ trillion
Standard Chartered Private Bank 3 In Latin America, growth will continue to outpace the average. We predict the region to account for nine per cent of the global economy by 2030, up from approximately seven per cent today (Charts 2 and 3). Within Latin America the biggest beneficiary will be Brazil due to its relatively high growth rate and scale of economy. We estimate Brazil will grow from the eighth largest economy in the world at present to the fourth by 2030 2 surpassing Japan, Germany, France and the United Kingdom in under 20 years. Even after a 50 per cent gain in the last decade, global output is set to more than double in real terms in the next 20 years. The biggest global beneficiaries of this will be in Asia. China and India will record the biggest gains as rising personal incomes push billions of people into the middle classes, driving both consumer consumption and domestic economic growth. At the same time, the Middle East and Africa will, along with Latin America, significantly outperform the United States and the European Union. All told, emerging economies will account for 68 per cent of global growth in this current super-cycle. In particular, Latin America s growing trade relationships with China will boost its own economies over the next few years, as the super-cycle drives realignment in economic relationships to the benefit of emerging economies. China is likely to grow at a 6.9 per cent rate over the next two decades, overtaking the United States to become the world s economic superpower within a decade. Indeed, we have already seen the impact of this shifting landscape when China recently overtook the United States as Brazil s main trading partner. Longer term, we expect that India will be a significant trade relationship for Latin America. Even as populations of other emerging economies start to age and labor costs increase, India s young economy anticipates significant urbanisation and a rise in manufacturing. We forecast an average growth rate for India of 9.3 per cent over the same period, making it the third largest economy by 2030.
Standard Chartered Private Bank 4 Chart 2: Nominal global GDP 2010, US$62trn Chart 3: Nominal global GDP 2030, US$308trn For Latin American private investors, the super-cycle presents several distinctive areas of opportunity including direct investments for business owners and entrepreneurs and a reallocation to targeted growth assets for high net worth individuals and multi-generational families. Latin American business owners in particular will benefit from building relationships in other markets among both prospective investors and customers. These relationships, facilitated by investment or private banks with emerging market expertise, can in turn drive further business and private investment opportunities including equity or debt issues, private equity deals, trade finance transactions and foreign exchange. Latin American individual and family investors can also leverage the economic super-cycle by investing directly in Asian companies and currencies as well as in offshore investment structures across a range of asset classes. 3 Both business and individual investors will find additional opportunities in home-grown companies poised to benefit through new or increased trade with Asia and other emerging markets. Perhaps the most obvious example is commodity manufacturers. Latin America, which has 25 per cent of the world s land, 30 per cent of its fresh water, 15 per cent of its oil and is a leading exporter of ethanol, sugar, orange juice, coffee, beef and chicken, stands to benefit from rising demand in China and other markets for these products. Chilean architectural firms specialising in anti-seismic structures and Brazilian aircraft component manufacturers are less well known but are among the Latin American businesses developing strong presences in China and other emerging markets.
In short, Latin American businesses and private investors have a unique opportunity to benefit both abroad and at home from the continued growth of Asia and other fast growing regions including the Middle East and Africa. However, the associated risks of such opportunities must be carefully managed. At Standard Chartered Bank we are conscious that recent global liquidity flows to emerging economies could potentially drive speculative bubbles. If this happens, governments will have to manage these bubbles with policy tools including floating exchange rates, monetary policy and mechanisms that provide market incentives that favour long-term capital inflows over short-term ones. Latin American business owners and private investors need to be extremely selective in their asset allocation, seeking both emerging market and local tax and fiduciary expertise as they explore the significant growth opportunities created by the current economic super-cycle. Standard Chartered Private Bank 5
Standard Chartered Private Bank 6 Notes 1. The current super-cycle started in 2000 and is expected to last until 2030. We have experienced two other super-cycles in the past two centuries: a. From 1870 to 1913 when the technological progress initiated in the United Kingdom as a consequence of the Industrial Revolution intensified with the United States as the main beneficiary. The United States rose from the fourth largest economy in 1870 to the largest by 1913; b. From 1946 to 1973 when the globalisation of new technologies such as aviation, automobiles and telecommunications, along with lowered trade barriers, enabled Japan to become the second largest economy, surpassing Germany in 1969. Chart 4 shows the growth rates through the three supercycles. In the first super-cycle, emerging economies accounted for 20% of global growth, rising to 28% in the second super-cycle. Now, in our view, they will explain 68% of the pick-up in the world economy by 2030. The Super-Cycle Report. Standard Chartered Bank Global Research 2010 Chart 4: Super-Cycles World GDP growth 2. Standard Chartered Bank forecasts that the Brazilian economy will grow to US$12.2 trillion by 2030 from US$2 trillion in 2010. The Super-Cycle Report. Standard Chartered Bank Global Research 2010 3. As of April 2011 Standard Chartered Private Bank recommends an allocation for a moderate investor with a one year view of 12% to emerging market bonds, 15% to equities in Asia ex Japan and 10% to equities in other emerging markets.
Standard Chartered Private Bank 7 Standard Chartered Private Bank Headquartered in Singapore, Standard Chartered Private Bank provides exciting career opportunities to over 1,200 employees including more than 450 Relationship Managers globally. It has 31 offices in Asia, Africa, the Middle East, Americas and Europe. The Private Bank has grown strongly since its inception in May 2007. On top of its organic growth, it acquired American Express Bank in 2008 which further improved its capabilities. In 2010, Assets under Management grew by 39% in Asia and 31% globally with more than 5,000 new accounts. The Private Bank leverages the natural strengths of Standard Chartered: A heritage of over 150 years in international banking, an international network across more than 70 countries and strong local presence in growth markets. This puts the Private Bank in an advantaged position to build and deepen client relationships. For more information, please visit privatebank.standardchartered.com
Standard Chartered Private Bank 8 Standard Chartered Bank in the Americas Standard Chartered Bank operates in 12 markets in the Americas, including the U.S., Canada, Mexico, the Caribbean, Argentina, Brazil, Chile, Colombia, Peru, Uruguay and Venezuela. The bank s primary function in the region is to facilitate trade and investment flows between the Americas and Standard Chartered Bank s core geographies of Asia, Africa and the Middle East. Standard Chartered s New York-based wholesale bank provides financial products and services to corporations, financial institutions and development organisations in the Americas. Wholesale banking comprises of Origination and Client Coverage, Transaction Banking, Financial Markets and Corporate Finance groups. Key products include trade finance services, cash management, treasury, foreign exchange and interest rate products, commodity finance, and structured import and export finance services. From its head office in Miami, the Standard Chartered Private Bank in the Americas offers its Latin America-based clients unparalleled access to the growth markets along with traditional capabilities in investment advisory, securities execution, trust and fiduciary services and portfolio management. The Private Bank in the Americas operates on an advisory centre model, emphasising the role of the trusted financial advisor and capitalising on the global product strength and intellectual capital of Standard Chartered. For more information on Standard Chartered, please visit standardchartered.com Important Information: Securities products and execution services in the US offered by StanChart Securities International, Inc.; Member FINRA/SIPC
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