“HS Dent’s Spending Wave works very well at forecasting economic trends in developed countries. In the long run, protectionist policies are self-defeating. They weaken the very industries that could help a country gain a foothold in the global market.” - Harry S. Dent, Jr.

Evaluating the long-term growth potential of developed countries depends on three key factors:

• The trends in the country’s internal marketplace, which, like the U.S., can be forecast using demographics and generation cycles .
• The competitiveness of the country’s export industries, which are often a larger overall component of its GDP by comparison with the U.S.
• The technological infrastructure, in particular the computer network and communications technologies that will enable the country to participate in today’s information revolution.

Demographics

Most developed countries around the world had baby booms after the second world war. But the time frames varied slightly as did the size of the boom. The biggest exception is Japan , whose demographic cycle runs exactly counter to that of the U.S.¹, a major reason it has been in an economic slump since early 1990. In general, however, the surge in births that started in the mid-1930s and continued for two and half decades means that a large percentage of the population in most other developed countries is reaching their peak spending years now and through the first decade of the 21^st century.

Though not quite as strong as the U.S. until around 2009, many countries in western Europe will boom 2 to 5 years longer. The Pacific Rim countries, except Japan, will also boom. South Korea will boom into 2020 and Japan will just enter its next boom from around 2008 into 2020.

Based on demographic calculations, the top European countries to consider for investment are Spain, Switzerland, Germany and Austria. The top Pacific Rim countries are Singapore, Hong Kong, South Korea and Australia.

Strong Export Markets

Our domestic economy has a large internal marketplace that in boom times can partly insulate us from global economic instability. The GDP of other countries, however, is more dependent on their ability to compete in world markets. We have seen that protectionist policies simply don’t work in the medium- and long-term. In fact, such policies tend to weaken the very industries that are trying to make competitive inroads into world markets. That’s why when we evaluate a country or region as an investment prospect, we factor in its competitiveness.

According to the International Institute for Management Development (IMD) in Switzerland, the top ten most competitive countries are The United States, Singapore, Finland, Netherlands, Switzerland, Luxembourg, Ireland, Germany, Sweden and Iceland. In some cases, for example Nokia in Finland, export sales is a huge percentage of the total market, with the result that a very high tech company can drive the stock market of a country that has slowing demographic growth trends. In general, though, the most competitive countries are also those that have, or are building, the most advanced information infrastructure², and Finland scores relatively high there as well.

Technological Infrastructure

The fastest growth in the developed world will be in those countries that have the most pervasive computer network and communications infrastructures. Such systems are essential for creating the sophisticated distribution systems that allow a country to efficiently reach world markets. The top ten countries are Sweden, the United States, Switzerland, Denmark, Canada, France, Norway, Hong Kong, Netherlands and Germany.

Another aspect to consider, in addition to technological infrastructure, is technological knowledge. Not surprisingly, those countries with the most highly-skilled workers in information-intensive industries are poised to profit from the information revolution that we are seeing around the globe. In her book The Next Century, Nuala Beck rated the top countries. Among the surprises on the list are Singapore at number 2, the Czech Republic at number 9, Switzerland at number 25 and France pulling up the rear at 39. Finland, the home of Nokia, ranks number 10.

When we combine demographics, exports, and technological infrastructure and skills, the best international investments through the first decade of this century are Singapore, Hong Kong, South Korea, Taiwan, Canada, Spain, Switzerland, Germany, Austria and Australia. The Asian countries provide the best diversification of risk to a U.S. equity portfolio.

¹ The Economist, April 22, 2000
² Wired World Atlas, November 1998