Theme du jour: Manufacturing renaissance vs. Middle-income trap
--You'd almost think we had turned the clocks back a decade or two to hear how positive investors are lately on the good old-fashioned manufacturing sector. Bob McKee of Independent Strategy earlier this week told Worldwide Exchange he thinks the fourth quarter marked the bottoming out and start of a renewed uptrend in global production.
--J.P. Morgan is similarly bullish;"after stagnating for much of last year, global manufacturing is expected to rise at a 3.5 percent pace…Asian economies that lie at the center of the global technology and manufacturing cycle will benefit most."
--Or will they? Mr. McKee is more cautious, citing the "Lewis turning point" at which developing economies run out of cheap labor and additional growth must be driven by increasing total-factor productivity (which is linked to social and political reform); a point at which many nations in the past have fallen into the middle-income trap.
--To be successful this year,investors need to find "the economies that will escape [this] trap rather than choosing those that are lifting off from poverty"; Mr. McKee's list of likely winners includes Poland, Chile, Mexico, the Philippines and possibly Turkey. Brazil, India and Russia fail to make the grade, and even China "looks increasingly likely to stay a middle-income economy," he cautions.