Are emerging markets as attractive now as when you coined the term in 1981? Emerging markets are a completely different animal. In 1981, they were peripheral to the global economy. Coming out of this crisis, they will represent a third of global GDP. That's huge. You can no longer ignore emerging markets. Are they as attractive on a valuation basis? No. Back then, they were probably trading at a 40%-50% discount to the West. Now they trade at par, or even a small premium. But now they are also more important, less risky, healthier and bigger.
Is China's economy on shaky ground?
Yes. The government threw everything at it. And they did it faster, more decisively and more massively as a percentage of GNP than any other country. That helped confidence everywhere, but once that begins to diminish investors will have to be more cautious. The authorities are not going to keep pushing the banks to lend as they have over the last year.
But in the long term, you would be really foolish not to have some money in China. Your typical European investor would not dream of being out of the American market because it's so big and important. Five years from now, nobody will dream of being out of the Chinese market.
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In 2007, you identified 25 emerging multinationals that were competing with established rivals in the West. How have they done?
Most have survived this crisis quite well due to a combination of factors. They had relatively low debt loads, so were resilient. And because of the experiences they have had with crises before, they're quite adaptable. So, they're back on their feet and growing again. [Brazilian oil giant] Petrobras has stood out and, on the other side of the world, [Korean electronics group] Samsung Electronics. It's done really well this year.
There are two exceptions. Aracruz [a Brazilian paper pulp group], which messed up big time on a derivatives deal and [Mexican cement giant] Cemex. Its acquisition strategy was too excessive in terms of debt and it focused on firms in America and Europe, where there are problems. Ultimately it may pay off though, particularly in America, where half of the cement used is in infrastructure. The US has a lot of infrastructure spending to do because we have invested too little for too long. So while Cemex was over-indebted, in the long run it should do well.
Thirty years ago China and India were frontier markets. What are today's frontier markets?
The Middle East, Africa, Central Asia and the Balkans. Most of these are small, speculative markets. But not the Middle East. It is an insanely ignored part of the world. How can you have a part of the world that contributes a significant amount of global GDP (3.16%), has markets that are functioning, which supplies us with a lot of our oil, and is one of the world's largest cash machines, and say: "Oh, we just forgot to put it in any index?" That is an example of a sort of colonialist mentality. These markets are trading at half the valuation of the West. So the Middle East is where I think there's most value. Qatar is particularly attractive because of its huge gas reserves and strong growth higher than China's.
Is the current rally justified?
Yes. It was a classic relief rally. It turned out we were not going into a depression, that the world was not coming to an end. Companies were not going bankrupt and the intervention by the authorities was effective. What worries me is that people are taking the good news for granted. This was a year of very strong positive surprises 2010 will be a year of negative surprises because people will realise that the old problems haven't been completely resolved. For one thing, banks have been lending like crazy to commercial real estate, which is still in deep trouble. What's more, there are two new problems. One is a huge amount of government debt in the developed world. The second is the spectre of inflation as a result of that.
Who is Antoine Van Agtmael?
His 2007 book, The Emerging Markets Century: How a New Breed of World-Class Companies is Overtaking the World, described how world-leading emerging market multinationals, such as Russia's Gazprom and Taiwan's HTC, were catching their Western rivals off guard.
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