Thursday, July 26, 2007

More Facts, this time Global Facts, don’t pray pray!

In this post, we shall examine two macro statistics, GDP and Population.

The Global GDP is USD 41trn while Singapore’s GDP is USD 120bn i.e. we make up 0.29% of global GDP, which is quite insignificant. So actually, calling Singapore a little red dot is already a compliment. So don’t be so yah-yah okay?

US, the world’s biggest economy contributes to roughly 25% of global GDP, while Europe makes up about 20%. Japan is No.3 at 11% and China is slightly less than 5%.

However, in terms of PPP which stands for purchasing power parity, a chim term which I shall explain later, China is already No.2 at 19% of global GDP, Japan at No.3 at 9% and India is No.4 at 8%. Developing countries or the new buzz word: Emerging Countries now make up close to 50% of global GDP in terms of PPP and growing fast! Maybe Singapore should call herself an emerging country, bcos that’s the in-thing now siah!

PPP tries to measure GDP by taking away the effects of exchange rate in goods and services. In layman terms, one Big Mac in US will have the same impact on GDP as one Big Mac in China. Whereas, in the conventional method of measuring GDP, the Big Mac in US will impact GDP 3-4x more than the same Big Mac in China. So PPP actually gives a better picture of how world GDP is structured.

So that’s global GDP, btw it’s growing at roughly 4% (for the past 5yrs), developed nations are growing at 2% and Asia at 7%. Singapore has been growing at 8-10% for the past 40 yrs and we might do 11% this year. This is actually quite amazing, so maybe we can afford to be a bit yah-yah. But it always pays to be humble though. Who likes a yah-yah person even when he is in a position to be yah-yah?

The other macro statistic that you should know by hard in order to call yourself a seasoned investor is population statistic.

Well if you have no clue, better memorize this list now!

Global population 6.4bn pple
China 1.3bn pple
India 1bn pple
Europe 900mn pple (this is tricky, bcos depends on how you define Europe, this no. will change)
US 300mn pple
Indonesia 220mn pple
Brazil 180mn pple
Russia 140mn pple
Japan 130mn pple
Singapore 4mn pple

Needless to say, demographics drive long-term trends. Why did the global economy grow so strongly in the past 100 yrs? A large part of it is probably bcos the human population exploded. In 1900, there was only 1.6bn pple in the world but now we have 6.4bn pple. That’s roughly 3% annualized growth rate. And we all heard about the baby boomers. It was this generation that brought about a few big trends in the past few decades, like the rise of automobiles, the mutual fund (i.e. unit trust) boom in the US etc. So bottomline, population matters! Why do you think our Gahmen keeps talking about not enough babies? Now they know relying on Singaporean babies is not enough, so can only import more pple here.

Anyways, going forward, the world population is expected to grow only 1.1% per year and will peak out in 2050 when the global population reaches 10bn pple. Will the global GDP still grow at 4%? And more importantly, will equities give you 10% return per yr? Food for thought huh.

Interestingly, here is a forecast of top 10 populous nations in 2050
India 1.6bn pple
China 1.4bn pple
Europe 825mn pple
US 395mn pple
Pakistan 305mn pple
Indonesia 285mn pple
Nigeria 258mn pple
Brazil 253mn pple
Bangladesh 243mn pple

This is why the whole world is so bullish on China and India. Though China is now in the limelight with strong GDP growth and a large population base, India is the dark horse (no pun intended!) that will win the race. India is the fastest growing population on Earth and will become the most populous country in time.

It is fortunate that Singapore has links to both countries and can definitely find a niche to play in the world theatre of tomorrow, be it integrated resorts, a private banking hub or something else.

For those interested to play the India story, I recommend Singtel (btw this is probably my first stock recommendation on this blog, so don’t bet your house on it). Singtel’s stake in Bharti will be worth more than Singtel itself in time to come. So buy it now while it’s cheap (PER 15x).

See also Secular Trends