The de-coupled world theory is back with a vengeance, with Investec Asset Management adding its voice to the chorus of managers who believe emerging markets, particularly China, will drive global growth for the foreseeable future.

Michael Power, investment strategist at Investec, based in Cape Town, South Africa, says that China is now more likely to be a leading indicator for the world’s economic health than any other nation, including the US.

He said, on a recent visit to Australia, that economic growth in China was spreading away from the coastal regions; “the story is starting to spread west”.

Power, a self-confessed student of economic history, said that until the 1830s, China accounted for about 30 per cent of the world’s GDP. It was now merely regaining its previous dominant position.

“You can’t ignore the politics of China, but also you can’t ignore the growth,” he said. China had its slowdown in response to the initial credit crisis starting about November 2007, but had rebounded by 30-40 per cent by March this year.

On the other hand, he said, the US would probably need a second stimulus package next year.

“A lot of the current feel-good factor in the US and elsewhere in the West is something of a sugar high,” Power said.

People were starting to realise the fundamental weakness of the US dollar, he said. But a weaker US dollar could see support for earnings growth coming back to the US.

Power wrote in a recent note to clients: “As the global economy rebalances and the East consumes more of its savings at home, so lending less abroad, especially to the US, the tug-of-war between Eastern and Western consumers will see prices rise more for those living in depreciating currency blocs (the West) than those living in appreciating currency blocs (the East).

“Whilst it is unlikely that the latter could experience deflation as the former struggles with inflation, the winning consumers in this tug-of-war will unquestionably reside in the East. But then is not that the essence of what we mean by global rebalancing – the East will party more whilst the West will have to go on a diet?”

Power is almost as bullish about prospects for the other BRIC (Brazil, Russia, India, China) countries too, especially India.

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