Asset AllocationApril 30, 2013

GSAM’s O’Neill: US Ready to Profit From Developing World

<em>In his last letter as chairman, the head of Goldman Sachs Asset Management took a global and optimistic perspective.</em>

Reported by Featured Author

(April 30, 2013) — It is possible Jim O’Neill simply wanted to go out on a high note, but the retiring chairman of Goldman Sachs Asset Management (GSAM) presented a rosy take on the global economy in his latest — and last — client note.

“Perhaps now things have shifted in such a way that the US is in a position to benefit more than many realize from this changing world,” the UK-born economist wrote. “This is helped by the competitive US dollar and competitive energy markets for industry and business….The US is enjoying strong export growth to China, the BRIC [Brazil, Russia, India, and China] and Next 11 countries.”

The US is enjoying strong export growth to China, O’Neill noted, now the US’s third-largest export market. In 2012, GSAM data shows that China bought 7% of the country’s exports, ranking behind Mexico (14%) and Canada (19%). By 2020, the asset management firm predicts China will oust Mexico to take the number two spot (responsible for an estimated 16% of US exports).

“In terms of the US balance of payments,” he wrote, “while far from strong, this changing world is contributing to an improvement in the current account and the broad balance of payments.”

In the changing global economy, O’Neill also stressed the distinction between large countries and rich countries. Sometimes they are one in the same (the US, Japan, Germany), but “size is not the same as wealth, as we often forget.” Only South Korea came up a number of times in O’Neill’s client note as an example of a small yet well-developed emerging economy.

“The BRICs and the N11 becoming bigger should make us all wealthier in aggregate,” he said. “South Korea is the 27th wealthiest [by GDP per capital], which is why it is a particularly strong, positive example for large populated emerging economies.”

At a recent conference on growth markets in New York, the GSAM chairman encouraged ambassadors in attendance to “suggest a visit to South Korea to the influencers in their countries in order to adapt and apply any potential learning to their own economies.”