Changing of the guard

Kerr Neilson

Western and Asian economies will soon be reaching a “cross-over point”, where traditional patterns of saving and spending will shift, according to Platinum Capital managing director Kerr Neilson.

In Platinum Capital’s annual report to shareholders, Neilson said he anticipates that in the West, “savings will rise at the expense of consumption”.

Neilson said this change in consumption behaviour would be supported by a correction of “the backlog of investment in public infrastructure” and the need to address alternative energy sources and conservation.

“We expect the reverse in China and most of Asia, excluding India, where savings will begin to make way for consumption,” Neilson said.

“China is at the extreme where investment and the trade surplus dwarf the consumer, so that one is inclined to believe there will be some painful adjustments as an appreciating exchange rate takes its toll.”

The manager said this issue may well become an important issue when constructing portfolios in the next few years.

The group also told its shareholders that the growing concern about developing markets is likely to “re-establish the risk premium at higher levels”.

“As we all know, the attraction of superior growth had completely changed investors’ risk/reward perceptions such that there was little difference in the rating of emergent and developing markets.”

With rising concerns about inflation and other issues in emerging markets, this attitude is unlikely to continue.