Stratfor IDs 16 Post-China Winners

July 31, 2013


China’s growth engine is shifting gears, and its dominance of low-end manufacturing is fading, opening the way to a new era where a roster of some 16 countries stand to emerge from China’s shadow and lead the next wave of low-cost global manufacturing growth.

That’s the latest take on life post-China from George Friedman, head of geopolitical think tank Stratfor, who argues that China is at the limits of its 30-year low-wage, high growth phase. An economic model that allowed inefficient businesses built around low wages and bank lending to thrive for years has now become an unsustainable drag on the economy, which has slowed growth and triggered inflation as well as higher production costs.

That’s forcing China to change, and as it changes its economic model, its dominance of low-value manufacturing will give way to countries from Ethiopia to Indonesia to Peru to take its place. Those countries, which Friedman collectively calls the “Post China 16,” have even lower wage advantages than China.

To be fair, many of these countries seem like a long shot, and even Friedman will concede that point, although he makes it clear that there’s no single country that can replace China. It will take a group of nations, combined, to fill such large shoes.

Some of the post-China 16 are emerging economies, some are frontier and many are of unclassified status, according to MSCI’s country classification system.

That lack of classification means index provider MSCI doesn’t even track these economies, because they have equity markets that aren’t developed enough in terms of size and liquidity to allow for the creation of indexes, according to Sebastien Lieblich, an executive director in MSCI’s index business.

Indeed, this group is truly a diverse bunch, and includes some of the least investable markets in the world. But that’s not to say they are totally out of reach for U.S. investors; there are a number of ETFs already on the market that focus exclusively on or tap in to some of these growing markets.

“Since the industrial revolution, there have always been countries where comparative advantage in international trade has been rooted in low wages and a large work force,” Friedman said in a research note this week. “If these countries can capitalize on their advantages, they can transform themselves dramatically.”

“There is no single country that can replace China,” he added. “Its size is staggering. That means that its successors will not be one country but several countries, most at roughly the same stage of development.”

The Post-China 16

The epicenter of this brewing growth is in the Indian Ocean Basin, although the geographical dispersion of the group extends all the way to Latin America. Countries like Tanzania, Kenya, Uganda and Ethiopia, Sri Lanka, Indonesia, Myanmar and Bangladesh are in the heart of the basin, and are growing. The Philippines is another country in the nearby region that’s looking prospective, Friedman said.

In all, Friedman points to eight countries on that side of the globe, one of them emerging—Indonesia—and three frontier markets: Kenya, Bangladesh and Sri Lanka.

The remaining nations in the region are still untracked by MSCI, and they include Ethiopia, Tanzania, Uganda and Myanmar.


Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!


The AlphaDex financial fund 'FXO' led inflows on Tuesday, May 26, but net outflows and falling stocks pulled total U.S.-listed ETF assets down to $2.152 trillion.

A slew of redemptions from a number of iShares bond funds helped fuel that firm's issuer-leading outflows on Tuesday, May 26. Meanwhile, net outflows and a falling market dragged down total U.S.-listed ETF assets to $2.152 trillion.


By Olly Ludwig

Yields will one day head higher, so is it time to get bond exposure outside the U.S.?

By Rachael Revesz

Stop dancing around the subject, call women ‘women’ and let’s be a more visible part of this industry.

By Olly Ludwig

It’s no secret that hedge funds love ETFs, but what’s less appreciated is that their love of ETFs will likely spell their demise.

By Olly Ludwig

Yes, bond yields are ticking higher these days, but it’s important to keep the whole yield-curve picture in mind.


By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.

By Invesco PowerShares

Invesco PowerShares and Market Strategies International’s second annual survey provides vital insights about smart beta and ETFs overall.

By Invesco PowerShares

Investors are implementing smart-beta exchange-traded funds (ETFs) in their portfolios in a variety of ways and for different reasons.