Anticipating Volatility and the Rise of Emerging Markets

Most significant has been the doubling of the world’s population since 1970, with 40 percent of the world’s population being in China and India—we affectionately call this region Chindia. Chindia has evolved from being isolationists 40 years ago to center stage on the global scene today.

With this population surge and integration into the global economy comes a need for new and improved infrastructure. Did you know that when the U.S. built its Interstate Highway System in the 1950s it consumed roughly half of the world’s available commodities?

Today’s equivalent of President Eisenhower’s highway buildout is the network of subways and rapid transit systems China is constructing. This graphic from CICC charts the world’s top ten cities by total length of rapid transit. With 410 kilometers of tracks, Shanghai reigns as king over cities like London, New York, Tokyo and Madrid.

Even more surprising is the pace at which they have been able to lay so many tracks. The first subway cars rolled down the tracks in London and New York during the 1860s but Shanghai’s first subway wasn’t operational until 1993. That means it took China 17 years to build what it took the UK and the U.S. 150 years to construct.

Shanghai and Beijing are the largest systems in China but recently many of the smaller cities, often referred to as Tier 2 cities, are hopping on board. The Chinese government has already approved construction for 28 rapid transit systems and 36 other cities have submitted applications for construction, according to CICC.

Our China analyst Michael Ding witnessed this firsthand while traveling in China last week. Michael was surprised to see a subway being constructed in his hometown of Dalian, a city of about 6 million. I had a similar surprising experience in New Delhi a couple of years ago when I traveled on the city’s new, pristine subway system.

While short-term factors like the U.S. dollar’s volatility and the Federal Reserve’s QE2 program seem to grab the most attention, I believe the doubling of the world’s population, massive infrastructure expansion like China’s subways and the “free market policies” being embraced by the government leaders in the emerging world are much more significant.