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Last 1000 Years for the Next 100 Years

We discussed about the importance of having a long-term view for a long-term mindset allocators in Last 100 Years for the Next 100 Years. Today, we want to share another important chart based on the lifelong work of Professor Angus Maddison. He was born in Newcastle upon Tyne, England, in 1926 and passed away in Neuilly-sur-Seine, France, in 2010 at the age of 83. His study on quantitative macroeconomic history gives us a very interesting long-term insight for us. In a nutshell, he intellectually guestimated GDP of each country, not region, and created a comprehensive database, which is still available for public (if you are interested, go to Maddison Project website, www.ggdc.net).

What you can see below is perhaps the most intriguing and important chart we can create from this database and projection based on Prof. Maddison’s 2008 paper, “Shares of the Rich and the Rest in the World Economy: Income Divergence Between Nations, 1820-2030”. We don’t need any word to understand this chart. Yes, China and India can grow much larger from now if you believe in mean reversion.

The Share of the World GDP

Source: Maddison Project

Most of you remember BRIC, a buzzword coined by Sir Jim O’Neill in 2001 when he was the chief economist at Goldman Sachs, but what happened to the concept? Over the last 5 years, BRIC’s public equity markets performed quite poorly compared to the world although their share of economy increased substantially and the diversion seems to be widening as well. But, if you look at the valuation (Forward P/E), BRIC is 30% cheaper. We know many allocators hate emerging markets, particularly BRIC, because of their recent underperformance, however, is it really a rational decision for the next 100 years based on the last 1,000 years of the economic history?

Source: MSCI

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