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Shifts in Economic Power
Can History Teach us Something?
Although I readily admit that I am no history student I do think that looking back on history at the rise and fall of various global empires does give us a possible insight into the rise and fall of economic powers.
From my limited perspective is clear that the Roman, Greek and Egyptian empires, (and indeed any other great empire) has seen a period of significant growth and a period of global domination followed by a period of either slow or indeed quick decline and during any period of decline we are generally start to see the emergence of a new and different global power.
One wonders if this is not the same with the Western economy where initially we saw the dominance of Europe and then this was followed by the United States and one wonders whether we are starting to see the decline of their global dominance in favour of the Far East with China and India becoming the dominant players in that region.
There is no doubt in my mind that the cycle of global aggressive war based dominance is much shorter than that of any economic global cycle of dominance, but I think it is reasonable to speculate that global economic dominance is shifting away from western economies to eastern economies and this shift is going to continue for many years to come and this surely should have a bearing on the way in which investors consider their geographical allocation of funds.
I would not be surprised if we look even longer term (and by this I mean 50 years plus) we will then start to see an emergence of South America as a significant global force in a way that will start to undermine what will then be a dominant Far Eastern economic region, but I suspect that this is a long-term view that most of us do not want to actively take!
Over the past 12 to 24 months we have been adjusting our equity allocation on a geographical basis to reflect this view and this has involved removing exposure to the United States and European equities in favour of the Far East and Emerging markets. There is no doubt that we tend to have a lower allocation to UK equities than that which is generally seen as standard but I think this reflects our ability to think things through with regards to asset allocation strategy rather than just adopting a followed the herd strategy.
From my limited perspective is clear that the Roman, Greek and Egyptian empires, (and indeed any other great empire) has seen a period of significant growth and a period of global domination followed by a period of either slow or indeed quick decline and during any period of decline we are generally start to see the emergence of a new and different global power.
One wonders if this is not the same with the Western economy where initially we saw the dominance of Europe and then this was followed by the United States and one wonders whether we are starting to see the decline of their global dominance in favour of the Far East with China and India becoming the dominant players in that region.
There is no doubt in my mind that the cycle of global aggressive war based dominance is much shorter than that of any economic global cycle of dominance, but I think it is reasonable to speculate that global economic dominance is shifting away from western economies to eastern economies and this shift is going to continue for many years to come and this surely should have a bearing on the way in which investors consider their geographical allocation of funds.
I would not be surprised if we look even longer term (and by this I mean 50 years plus) we will then start to see an emergence of South America as a significant global force in a way that will start to undermine what will then be a dominant Far Eastern economic region, but I suspect that this is a long-term view that most of us do not want to actively take!
Over the past 12 to 24 months we have been adjusting our equity allocation on a geographical basis to reflect this view and this has involved removing exposure to the United States and European equities in favour of the Far East and Emerging markets. There is no doubt that we tend to have a lower allocation to UK equities than that which is generally seen as standard but I think this reflects our ability to think things through with regards to asset allocation strategy rather than just adopting a followed the herd strategy.
Richard Gough
