Is The U.S. The Next "Emerging Market"

What will the next big emerging market be? Africa? Southeast Asia? Nope, says the man who created the “emerging market” moniker. He says the next big “EM” will be the United States, in a manner of speaking.

“Antoine van Agtmael is arguably the founding father of emerging-markets investing. He still is an evangelist for investing in parts of Africa, Asia, Latin America and other less-developed regions, where he thinks the future remains bright,” writes The Wall Street Journal’s Jason Zweig. “But he believes the U.S. is at the beginning of an industrial revitalization that most analysts only have begun to recognize.”

Van Agtmael told Zweig that, when he visited China in 2012, many manufacturing executives complained about American competition — a concern he hadn’t ever before heard in 40 years of monitoring Asian markets. Cheap oil and natural gas in the U.S. and stagnant wages are making America more attractive to locate a business, while rapidly rising labor costs — 15% annually — have been making China less attractive, van Agtmael noted. Cellphone infrastructure and the use of robots and three-dimensional printing are also areas where the U.S. has an advantage, he says, and investors haven’t fully absorbed the impact that these factors will have going forward.

“A decade ago, nine out of 10 companies would tell you they were thinking about building their next plant in China,” van Agtmael said. “Today it’s more like three out of 10, and maybe five out of that 10, say they want to build in the U.S. … U.S. manufacturing is becoming more competitive than you would think, and China’s less. And the idea that manufacturing is old-fashioned is itself old-fashioned.”

Van Agtmael thinks U.S. investors should have up to a quarter of the equity portion of their portfolios in emerging markets — much more than most have. But he’s quite high on the U.S. “Why has everybody been surprised by how well the U.S. stock market has done lately?” he said. “Because they’re only beginning to realize the glass is half-full again instead of half-empty.”