The new global titans to emerge from the Great Credit Crash of 2008-2009 don’t lie in the industrialized economies. Rather, the new leaders will emerge from advanced emerging market countries like China and Brazil whose economic infrastructure and domestic consumption have remained relatively resilient since the emergence of the credit squeeze 19 months ago.

The two best emerging market economies for long-term investors are China and Brazil. Both countries will emerge stronger following the stabilization of the global financial system supported by strong economic underpinnings, dynamic export capabilities, strong currencies and bulging foreign-exchange reserves.



The degree of financial leverage in China and Brazil is far less than the non-performing loans and toxic assets still plaguing banks in the industrialized markets. Banking systems in most countries across Europe and the United States are effectively insolvent and highly dependent on state intervention to fund liquidity and bailouts. But that’s not the case in China and Brazil where the extent of speculation was nowhere as aggressive as Wall Street or the City of London prior to 2008; new global economic leadership will emerge from this crisis, which marks the beginning of the end of American financial hegemony. And that leadership will be domiciled in places like Shanghai and Sao Paulo.

Already this year the Brazilian Bovespa Index has gained 17.6% while in China the Shanghai Composite Index has surged 33%. Though both bourses remain off their all-time highs, I expect them to recover much quicker than their emerging market peers once this bear market concludes for the major markets. Both bourses are rallying since the start of the year and, in some case, might be interpreted as early stage bull markets developing following the decoupling vis-à-vis Wall Street.

I’m not buying China or Brazil now. I’m waiting for another correction to materialize following a dramatic advance since March. Though both markets have seemingly decoupled from New York, it would be naïve to assume this can continue if the American economy continues to contract and domestic consumption fails to recover over the near-term.

Yet it seems quite plausible that these new global titans will continue to dominate global trade and finance over the next decade and beyond as the balance of economic power is transferred from the West to emerging markets in the East and Brazil. The near-destruction of the Anglo-Saxon financial model has accelerated this eventuality and will propel China and Brazil to the forefront of most traditional investment portfolios as their respective markets grow larger and become mainstream indexes in global portfolios.