I am in China this week. And I must warn you that I am a big China fan.
It is my favorite destination and I enjoy all my trips here. I get to see first-hand all the changes that are happening here that affect the globe.
But I am a bit worried and concerned. I am actually meeting average people and judging the pulse of the business here. The standard of living has really shot up here. I am not focused on large cities like Shanghai and Beijing. I am actually visiting second-tier cities like Suzhou.
The youth have a spring in their step. They are confident and buzzing around with intent. The salaries that are being paid, as well as being demanded, have soared. We can expect a continuation of inflation driven by wages. The young have money to spend and are not shy doing so.
Latest electronic gadgets, cars and clubs are traditional spend areas. Housing is soaring and international travel is much easier for these yuppies.
I am concerned because the goose that laid the golden egg is slowly but steadily being consumed. While wages rise in Asia (I have seen and reported on the same phenomenon in India, Thailand, Philippines, Malaysia and others), I am also seeing the desperation grow in America and young people there willing to settle for much less in order to gain employment. Wages that were unacceptable for college graduates are being offered and accepted.
The scales are tipping and we may be just a few years away from reverse outsourcing.
The challenge that the United States faced with millions of jobs leaving its shores in the 1990s and 2000s may gradually reverse.
I am not saying that jobs are coming back in droves in the United States, but I am saying that we will begin to see a shift in value add outsourcing while the lower end jobs will come back to the United States.
Unless we see a sense of rational thinking in Asia and its youth, the attitude is becoming one of taking the mass availability of jobs as a right rather than as a gift.
Nothing has driven this home than the meltdown we are observing in Europe. When the U.S. growth is slow and now Europe is crumbling, we are seeing the Asian economies getting exposed to the real challenge. No longer is Asia growing by default as the globe replaced U.S. consumers with European catch up. Now Asia has to grow on its own and seems to wonder how that happens.
The youth are oblivious of the cascading effect of the slowdown of the globe and continue to demand higher salaries and expect jobs at every step of the way.
When this does not happen over the next couple of years, sudden shock will set in and one of two things will happen. Reality will dampen the Asian youth’s dreams and bring them to their collective senses, or they will flounder and struggle with the new reality where Europe and the United States will capture back some of the real losses they have seen for a decade or longer.
Will Asia continue to shine, albeit with a low wattage, or will the Asian dream falter, splutter and collapse? Only time will tell as to which outcome will play out.
But this scenario will play out slowly and it will take a couple of years to start seeing the effects of what I am predicting.
In the meanwhile, we will continue to hunt for gems in Asia which will outperform the markets. Focus will be on fixed income and stocks which have a balanced exposure to Asia as well as have sources of income in the United States and Europe which are scheduled to grow.
Stay diversified and stay overseas in your portfolio.
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