Skip to footer

Pension investing and developing countries

Institutional investors will turn to the developing world seeking higher returns but what are the risks of seeking those returns?

|
Issei Kato/Reuters/File
A money changer shows some one-hundred U.S. dollar bills at an exchange booth in this file photo. Kahn predicts that pension investors will soon have a vested interest in the health of developing countries like Egypt.

In the developed West, individuals seek to have a comfortable retirement and have saved trillions of dollars in private savings and mutual fund holdings and retirement plans.   The institutional investors are aware that U.S Treasuries pay 0% right now.  Will the U.S Stock Market yield a 7% annual return over the next decade?  It is possible but this would mean that the Dow Jones will be rise to 25,000 in the year 2022.  If the Dow Jones experiences such a rise, then Glassman and Hassett will be selling more copies of their 2nd edition of Dow 36,000.

So, I predict that institutional investors will turn to the developing world seeking higher returns but what are the risks of seeking those returns?  Will Moodys and S&P invest in highly trained institutional analysts so that Western investors actually know the true risks that they face in investing in the developing world?

I predict that the asymmetric information issues that we faced with the mortgage backed securities in the U.S will be even more severe here.

There is also the issue of political risk.  How will the ratings agencies use econometric models to predict whether there will be a coup in Egypt and whether the new government will renege on foreign debt?  I recognize that if investors know that they don't know these risks that they will demand  a larger risk premium in terms of higher interest rates.

As the U.S has trillions invested in certain LDC nations, will we ask our military to get involved to protect our interests in these nations?  In the past, there were multinational companies such as Exxon who had invested in irreversible capital in such nations but I'm anticipating that moving forward that hundreds of millions of Americans will have a financial stake in the health of these LDCs because the productive growth is taking place there and our capital has been invested there.  Will this "skin in the game" make our people more interested in foreign affairs?  Will more Congressmen get a passport?

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.
editor@csmonitor.com
Subscribe
Mark Sappenfield
Editor

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

Subscribe to insightful journalism

QR Code to Pension investing and developing countries
Read this article in
https://www.csmonitor.com/Business/Green-Economics/2012/0203/Pension-investing-and-developing-countries
QR Code to Subscription page
Start your subscription today
https://www.csmonitor.com/subscribe