Commonwealth Funds: Articles

Dr. Ken Henry, Australian Secretary to the Treasury, recently proclaimed that Asian demand for resources based on population growth would create a "Golden Age" for the Australian economy that could last until 2050. He states structural changes in the economy "more profound than anything in history" that could lead to a period of "unprecedented prosperity".

If you believe the enormously populated Asia/Pacific region is going to experience growth, who is better positioned to deliver to those markets? Clearly, Australia and New Zealand are closer and in time zones compatible with the Asian regions while the U.S. and Europe are at a disadvantage. Although, historically, trade is often measured in terms of how countries trade with the U.S. with its large consumer economy, the question really should be how competitive companies will be with the U.S. in the Asia Pacific region?

Ranking as the fourteenth (World Bank 2008) largest country in the world, Australia is internationally recognized as a well managed economy with strong economic fundamentals. Amongst the advanced (or developed) economies, Australia is the only one to have avoided a negative year-ended growth rate during the global downturn. While activity did contract in the final quarter of 2008, it is likely to have grown by around 2 per cent in 2009. The Reserve Bank of Australia's economic growth estimates is for the economy to grow annually by around 3.25% to 3.5% over the next couple of years.

Looking forward, the central scenario for most of the developed economies remains a subdued recovery. It is likely that many of the developed economies may continue to be weighed down by the desire of households to reduce leverage and increase savings.

The picture in Asia is very different. A number of economies have had near V-shaped recoveries, which is particularly evident in the data for industrial production and trade. Unemployment is coming down and, unlike in the developed economies, core inflation has...

Robert Scharar, co-manager of Commonweath Australia/New Zealand (CNZLX) and Commonwealth Global (CNGLX), sees potential south of the Sahara, as well as Down Under.

Question: You invest all over the world. Where are you seeing the best opportunities right now?

Scharar: We see a lot of activity in Africa. We've been involved there for about 15 years, and in the last two to three years we've seen a tremendous increase in opportunities in most every sector, particularly in the sub-Saharan continent.

Asia gets a lot of play because of China and India and their growth rates, but Africa also has a huge population, and a lot of natural resources. The politics are becoming more stable; you're getting changes of government through a democratic process.

Africa will, I think, come more and more to the forefront as a place to invest for American businesses. It's an unrecognized economic opportunity for a lot of people.

Q: What's changed in Africa over the last few years?

A: Increasing political stability, better education. The middle class is expanding very rapidly, and as wealth is accumulated and the middle class begins to emerge, they're still trying to bring members of the extended family up with them. You can certainly point out countries where there's civil war and strife, but a lot of countries are fairly peaceful, and while there is official corruption, voters are insisting on more and more transparency. Investors really should become a little bit more aware of the opportunities in Africa, and clearly American businesses should.

Q: Should people be worried because frontier markets have done so well in the last year? Why isn't this the end of the run?

A: Because the growth rates are still increasing. And these companies are not priced at frothy levels. If you looked at these, you'd reach a conclusion that there's plenty of room to move forward-even in countries like South Africa, where you have very developed companies that you can buy into.

In our global fund we've bought into...

FCA Corp, investment adviser to Houston based Commonwealth International Trust, parent to four international mutual funds, including the Commonwealth Australia/New Zealand Fund, played host to New Zealand officials touring the U.S. to promote the benefits of the Trans Pacific Partnership (TPP) trade agreement currently being negotiated with United States. New Zealand was one of the first four countries (with Singapore, Chile, and Brunei) that created the "P4" trade agreement in 2005. "We're excited that the P4 has now become the Trans Pacific Partnership, currently being negotiated by the original four countries and the United States, Australia, Peru, and Vietnam.

New Zealand has seen the benefits of liberalizing trade in the Asia Pacific region through job creation and increases in exports. We believe that with the US in the TPP we have the opportunity to shape the future trade framework for the Asia Pacific. We also think this initiative will help support the United States Administration's plan to double exports. As the participants in the TPP negotiations look to create a 21st century agreement, this should assist with job creation and large and small business growth in cities like Houston," stated Ambassador Ferguson.

According to the Greater Houston Partnership, Houston's foreign commercial ties exceed 3,000 firms and organizations trading more than 259 types of products and services in 17 regions. Approximately 735 Houston companies and organizations report exporting products internationally. Many of these organizations are trying to understand how to reap benefits from the exploding Asian marketplace.

In March, President Obama announced that the United States would participate in negotiations of the TPP trade agreement that could have an affect on Houston's export sectors. The U.S. will engage with an initial group of seven like minded countries, Singapore, Australia, New Zealand, Chile, Brunei, Peru and Vietnam. The agreement is intended to help expand...