Emerging market giants like Jaguar Land Rover’s Indian parent Tata are ‘stamping their names’ across UK business, a new report claims.
And it warns that UK counterparts are not doing enough in the other direction.
Produced by wealth management firm Williams de Broë, its author, head of research Jim Wood-Smith, cautioned that British-based companies were not capitalising on the rapid economic expansion of emerging markets, generating in aggregate only 13 per cent of their revenues from the developing world.
In contrast, investment into the UK by emerging market companies was booming, with nearly £83 billion being invested here last year by groups such as Tata – now the UK’s largest industrial employer thanks to its £9.6 billion investment in buying Jaguar, Land Rover, Corus Steel and Brunner Mond (formerly ICI), as well as Tetley Tea.
“Tata is just one example of the emerging market giants who are stamping their names on almost every area of business,” said Mr Wood-Smith.
“The dichotomy for multinational companies based in Europe is that while they grapple with low domestic growth, sovereign debt issues and banking crises on their doorsteps, their competitors based in China are hungry and ambitious.”
The report, Vision 2012, WDB’s annual review of investment themes for the coming year, also highlights the stick or twist prospects facing private investors – either earning negative real returns on their portfolios for many years to come or having to accept higher degrees of volatility in their investments.
Mr Wood-Smith predicts that UK interest rates will remain at or around their current very low levels for many years, ‘possibly running into decades’.
As a result, savings incomes are likely to be below the rise in the cost of living of the majority of the country’s population.
“The conundrum that we all face is that the returns on ‘safe’ assets will struggle to be positive in real terms for much of the coming decade. In contrast, ‘risky’ assets will provide a higher and growing income stream, combined with an ever-more volatile and random capital performance. In order for portfolios to provide returns that are more than paltry, investors must take on greater risk at a time when the volatility of equity markets is highly likely to become ever greater. It is a difficult circle to square.”
Mr Wood-Smith believes2012 will be another year of ‘spectacular’ market moves, driven in part by the increasing influence of exchange traded funds (ETFs) and other similar products. “We all need to accept that this volatility is a fact of life in modern markets. Low cost and efficient ETFs may be, but this is a double-edged sword allowing larger and more frequent short-term trading to occur. This can and now does happen in a matter of minutes, rather than days or weeks. The cat is out of the bag on this one. Regulators talk of attempting to control some of the more esoteric and complex structures behind these funds – moves that we support – but this will not change the nature of the beast.”
As to the London Olympics, the report suggests that hosting the Games may not prove as great an economic boost as hoped, in part due to the prevalence of foreign and/or privately-owned companies amongst the contractors and suppliers, thus denying private investors the opportunity to invest directly in listed businesses participating in the Olympic expenditure.