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SATURDAY, JANUARY 29, 2011
At Davos, Emerging Markets Were the Stars
Davos has its mojo back. The worthies at Last Week's meeting of the World Economic Forum in Davos, Switzerland, moved on from the grim preoccupations of the past two years—the global financial crisis and its long aftermath. They even seemed to put aside their efforts to solve the eurozone's debt woes. Instead, they looked on the bright side: Emerging markets are booming.
World leaders and corporate chieftains at the annual event zeroed in on how developing countries are welcoming corporations, and how companies can profitably invest. Underscoring these themes, China sent 66 officials in its delegation to Davos, its largest ever, and the Indian presence was strong as well. The meeting started this past week and was slated to wrap up on Sunday, Jan. 30.
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The upbeat mood stood in sharp contrast to the past two meetings, where, as one Davos veteran put it, attendees spent most of the time looking at the tops of their shoes.
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"The momentum is back and very noticeable," said William Green, chairman of Accenture (ticker: ACN), a global management consultant. "The key word is confidence, the cheapest stimulus there is. With or without the statistics to support it, confidence is still important."
Russian President Dimitry Medvedev, the keynote speaker, offered both encouragement to foreign investors and a warning: "We don't need lecturing."
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Davos regulars—such as the leaders of various large Western nations—came and spoke, but the conference attention was focused on emerging-market countries. And based on corporate action both at the conference and just before it, the emerging-markets theme is likely to remain the topic of choice at Davos meetings for some time to come—or at least until the next financial crisis.
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For example, in Davos Thursday, ExxonMobil (XOM) and Russian oil company OAO Rosneft (ROSN.Russia) announced they had signed an agreement to look for hydrocarbons in the Black Sea. That followed Rosneft's share swap deal with BP (BP) earlier this month. Meanwhile, just before the conclave began General Motors (GM) said China became its biggest market. And energy consultant PFC Energy said that Brazil's Petrobras (PBR) became the third biggest oil company by market capitalization in 2010, muscling aside Royal Dutch Shell (RDS) and Chevron (CVX).
Perhaps the conference's greatest nod to the growing influence of the BRICs—Brazil, Russia, India and China—was the choice of the keynote speaker, Russian Federation President Dimitry Medvedev.
He painted a picture of a country trying to improve its rule of law, among other things dear to investors' hearts. Though he asked investors to give Russia time in that effort, he also issued a stern warning: "We don't need lecturing."
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Medvedev said no special taxes would be levied on the financial sector, and he dangled the prospect of many billions of dollars worth of new privatizations of attractive government-owned assets in banking, energy and other sectors.
Companies are talking the talk about emerging markets, and walking the walk.
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Numerous CEOs Barron's spoke with last week indicated they are increasingly shifting their capital-spending dollars to more vibrant emerging markets.
Accenture's Green said his firm is focusing its investment efforts on southeast Asia, Africa and Latin America. Federal Mogul (FDML) CEO Jose Maria Alapont said the auto-parts maker had, in just a few short years, changed its capital-expenditure split from 50% U.S. and 50% the rest of world to one-third each in the U.S., Europe and Asia. That's pretty quick, given the complicated manufacturing and supply-chain needs of a major car-parts maker.
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THE TOPIC OF EUROPEAN SOVEREIGN debt wasn't ignored; some panels were devoted to it. Yet little in the way of important developments was revealed, at least as of Barron's press time late Friday—despite the presence of most of the big players involved, including German Chancellor Angela Merkel and Greek Prime Minister George Papandreou.
There was anticipation before the forum began that the European sovereign-debt issue would be front and center at Davos, but that simply wasn't so. The closest the conference came was a panel that included both Papandreou and European Central Bank President Jean Claude Trichet.
Papandreou said a more robust, flexible European Financial Stability Facility, which currently holds 440 billion euros in potential funds, would help calm bond markets, even for Greece, which hasn't received EFSF funds. Greek debt yields remain very high compared with Germany's, even though Greece has instituted austerity measures and received last spring's bailout, as markets think it might not be enough.
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There has been a contentious discussion in European government circles about whether the EFSF kitty will be raised and whether it will be given new powers beyond backstopping, such as lending money to countries so they can buy back their own sovereign debt at depressed prices. The talk at Davos was that a broad outline on potential EFSF changes could be reached by March.
JAMIE DIMON, chairman of JPMorgan Chase (JPM), made some news when he became visibly agitated and defensive in reaction to a question about Americans' anger at banks for the U.S. bailout. For more on that see Stocks to Watch Today. The spotlight, however, remained on developing countries.
Future conferences of the World Economic Forum might do well to pay more attention to the challenges in the developing world, including those that sparked violence last week in Egypt and elsewhere in the Middle East. With fast growth, social inequality is sure to widen in emerging markets. Somehow, the quality of life will have to improve for all the promises to be fulfilled.
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