While United States businesspeople may be able to produce a recession by acting out their fears, world markets have performed well in 2007. Almost every major stock exchange rose in dollar terms, with the exception of Japan. Growth was especially strong in China, Germany, Greece, Turkey, Brazil, the Middle East and southern and eastern Asia. Germany was the best-performing ‘rich-world’ stockmarket:The DAX (shown in the chart) rose by more than the exchanges in Russia, Mexico and Poland.
Interest rate spreads are especially interesting right now. In some countries, 3-month interest rates are lower than the rates on ten year government bonds: In countries like the US, Japan, India and China that means that lenders have little or no reason to lend their. In most other markets, bonds offer low interest rates because of the low risk associated with them.
That encourages investors to put their money out into the market, where they can get higher returns. And, of course, low returns at home means that investors in the US, China, India and Japan are strongly incentivised to invest big abroad (Hence Tata’s $2 billion bid for Jaguar and Land Rover, China’s $5 billion stake in Morgan Stanley, investment by Japanese companies overseas is expanding, and the massive outflow of US investment and debt continues).
In 2008, The Economist‘s global business barometer shows IT and technology as the most confident of seven major business segments, almost 20% more people expecting improvement than are expecting deterioration. We are, for the moment, with the No Recession forecasters.
The implications for AR managers are obvious. Technology vendors will need to deepen their efforts in growth markets. Because prospects look good for technology, investors will increase their demand for tech stocks. That will increase market capitalisations and reduce the cost of capital. In tern, that will stimulate more M&A activity in the sector. However, M&A can decelerate companies. Few firms have M&A down to a fine art (Cisco and Oracle do, amongst others). That means that there will be some stumbles and setbacks, especially for firms that fail to win profitable positions in growth markets. AR needs to become more global, and it needs to react more to nuances in high-growth local markets.
But in the US, there will be special challenges for AR managers. If the US economy slows, then many analysts in the US will not appreciate that the tech market is continuing to grow dynamically on a global scale. Analysts there will have more personal anxiety. This reinforces the need for what we termed ‘Recession AR’ in 2002: a relationship-intensive mode of high-trust AR needed to guide US analysts through what they fear may be recessionary waves.
In essence, therefore, there is a fundamental divide opening up in AR tactics between high-growth regions (into which investments will pour) and low-growth regions (where analysts may become too cautious and mistakenly extrapolate from their national economy onto a global economy that follows quite different trends.