In 1989, a historic economic event occurred that changed all of that. Sir John Templeton, one of the worlds great international investors and philanthropists, called the fall of the Berlin Wall the third most significant event in the history of the world. The result, as we now know 20 years later, is that capitalism, capital, ideas and freedom have spread all over the world. This expansion has been called the “Emerging Market Marshall Plan.” This plan is far less noble and much less deliberate than the historically-unprecedented Marshall Plan. However, the result of this Emerging Market Marshall Plan is that the U.S. consumer’s $10 trillion annual spending and the European consumer’s spending helped developed and emerging markets all over the world to join the global economy.

Initially, they began as export-driven economies and now are becoming more self-sustaining and less dependent on the U.S. and Europe. Since 1989, the value of the world’s stock markets has gone from less than $15 trillion to $52 trillion today. Emerging market consumers will go from $7 trillion per year in consumption to $20 trillion in just then next decade. 

Some interesting notes:

• There are two Tiffany & Co. retail stores in New York City and seven in Hong Kong.

• India’s Tata Motors makes the world’s most affordable car at a retail price of $2,200.

• Turkey’s Ülker owns renown Godiva Chocolatier.

• China’s Haier is now the world’s largest refrigerator maker.

• India’s Mahindra will be importing 13 tractor models into the U.S. next year.

Today, the question is no longer “Can I invest outside of the United States?” Better questions are, “Should I?” And “How?”
The greatest investor of the 20th century, Warren Buffet, provided an answer when he was quoted saying, “The 20th century belonged to America, and the 21st century will be long to Asia. Invest accordingly.” 

So if the emerging markets look so great, how does the U.S. look? For the last 50 years, our debt has grown, but we have managed to grow our economy faster. How? GDP growth has outpaced Congress because of two very important contributors: technology and immigration. Our immigration policies have been the best of the G7, and our technology productivity increased 17-fold in the 20th century. More recently, labor expenses make up about 70% on average of the cost of producing goods and services in the U.S. The labor cost per unit of output has been falling at an unprecedented 4-5% pace, according to the Bureau of Labor. Therefore, productivity actually looks to be accelerating.

The world is unleashing a similar productivity wave on a global scale, leveraging the last decade’s Internet build-out and making the railroad’s impact on the Industrial Revolution (IR) seem small by comparison. Recall that the U.S. and Great Britain led the IR, and their economies were agrarian and industrial, meaning their profit margins, in general, were lower. In the Information Age economy of today, we have 2 billion consumers instead of 200 million, and the net margins in the Information Revolution dwarf the Industrial Revolution. If you study how Google became a $200 billion dollar company in just one decade, a feat which took GM a century to achieve, you can begin to understand the potential for companies to grow very quickly and profitably in this era.

Thus the world is growing, and the U.S. is leading a productivity revolution unlike any seen before. When Defender Capital constructs a global portfolio, the U.S., Israel and Asia comprise the lion’s share. We avoid the rest of the world in general, although Scandinavia and Canada do have some interesting companies.

While the U.S. multinationals are one way to participate in the global economy, small-capitalized companies, both here and abroad, are another. Buffet paid just under 5 billion, his largest investment overseas, for Israel’s Iscar, stating: “If I could find more like it, I would certainly be interested.” While most Israeli companies are too small for Berkshire Hathaway to invest in, they have proven a perfect fit for one of the world’s most successful technology companies, Cisco Systems, Inc. Cisco alone has acquired nine Israeli companies. Intel, the argument goes, maintains its global chip dominance partly because of their 6,000 employees in Israel. What Cisco and Berkshire found in Israel is truly fascinating. As the first country to raise interest rates, Israel was the first to emerge from the global recession, and their economy is second only to the Silicon Valley in innovation.

Israel, followed by Canada in third place, has more listings on the NASDAQ than any other country in the world besides the U.S. This month, The Vanguard Total World Stock Fund announced they are adding Canada and Israel to their fund, with a focus on small companies. It is a $30 billion fund, and their allocation for Canada is targeted at 7%. Vanguard has not yet announced what percentage of the fund will be allocated to Israel, but in an economy of that size, even as little as 2% of a $30 billion fund could move the needle.