Point of View - Global Investment Solutions from Northern Trust

Voices: Grant Johnsey

A review of current activity in global financial markets, with an emphasis on U.S. markets.

Today, and over the foreseeable future, a series of events — call them global megatrends — will have a profound impact on the world economy. Each issue of Point of View will share insight into these trends and how the institutional investment community is preparing to address them.

Projected 2008 Economic Growth
World GDP is expected to grow 4.8% this year. Deeper analysis shows that many emerging and developing economies are expected to post stronger economic growth than the developed countries.

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Source: Source: International Monetary Fund,
World Economic Outlook, October 2007

As countries seek to improve retirement coverage for their citizens, the global pool of pension assets is expected to grow dramatically. A few of the developments that are expected to increase demand for both domestic and international investment opportunities include:

Bulgaria: The government’s proposed medium-term fiscal reform program for 2008-2010 would increase social security pensions.

Chile: The lower house of Congress approved a bill that would establish a Basic Solidarity Pension, financed through general revenues; create a pension bonus for each child a woman bears or adopts; and subsidize social security contributions for low-income workers.

Colombia: Upcoming legislation is expected to include provisions for a multifund model for pension administrators.

Mexico: As of March 28, 2008, individual pension contributions are to be automatically invested in one of five “lifestyle” funds that are supposed to match investment horizons with appropriate levels of investment risk.

Singapore: The government announced five retirement reform proposals intended to extend working careers and improve returns on investment with the Central Provident Fund.

Source: Greenwich Associates/Global Custodian study

Cross-Border Portfolio Investment Increases Institutional investors, including pension funds and insurance companies, are looking beyond their domestic markets for investment opportunities. French institutions, for example, more than doubled their cross-border investment activity between 2001 and 2004.

As defined by the IMF minus the newly industrialized Asian economies. * Includes Argentina, Brazil, Chile, China, Colombia, Czech Republic, Ecuador, Hong Kong SAR, Hungary, India, Indonesia, Korea, Malaysia, Mexico, the Philippines, Paraguay, Peru, Poland, the Russian Federation, Singapore, South Africa, Taiwan (China), Thailand, Turkey, Uruguay and Venezuela. Source: Bank for International Settlements report, Institutional Investors, Global Savings and Asset Allocation, February 2007

Pension reforms in many developing economies are spurring the growth of funded pensions, both public and private. These growing pools of assets will create further demand for global investment opportunities.

Growth of Pension Assets in Emerging Economies

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Source: Organisation for Economic Co-operation and Development, Global Pension Statistics

Related Links

“Emerging Markets Investing — Efficiently Adding Emerging Market Equities to a Global Portfolio”
Download the Northern Trust white paper from January 2007.

“The Global Shuffle”
Read the article from the July 2006 issue of Point of View on how investors are viewing money flows around the world.

Organisation for Economic Co-operation and Development, Global Pension Statistics
Statistics and other information on the global pension industry.

“IMF World Economic Outlook”
International Monetary Fund staff economists’ analyses of world economic developments.

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