INVESTMENT SPECIAL: Sell the East, buy the West

The end is nigh for the Asian boom – but parts of Europe look perky

At the beginning of 2010 I was asked to announce my ‘trade of the decade’. Forecasting ten years ahead should be easier than forecasting short-term. But at the time the global economic outlook was more than usually uncertain. That made it tricky. So after a little thought I did what I normally do when stumped. I looked at what everyone else was predicting and went for the diametric opposite.

Fund managers and financial advisers were nuts for emerging markets in 2009 and 2010. I could barely see over my desk for research papers extrapolating 10 per cent GDP growth in China forever. At the same time most observers were down on western markets, despite them being much cheaper. So my trade of the decade was ‘sell the East, buy the West’ (with Japan being considered, perhaps perversely, part of the West).

So far this hasn’t worked out badly. Most markets, emerging and emerged, have seen double-digit gains in the last year: the Dow Jones rising 20 per cent; the FTSE100 up 16 per cent; Germany’s DAX 30 per cent; Hong Kong’s Hang Seng 15 per cent. Yet the two big eastern markets most people put their faith in haven’t done so well: India’s Sensex is up just 10 per cent and Shanghai’s CSI 300 has lost 2 per cent. And in the shorter term, things really have gone my way: the MSCI World gauge of advanced-nation equities has beaten that of emerging markets by five percentage points so far this year.