(HBC) Europe Withers, but the World Hopes

Charles Dickens’ classic ‘A Tale of Two Cities’ begins: “It was the best of times, it was the worst of times…” Isn’t the world going through similar moments of despair and hope?

The world hoped and hoped that the economic crisis that started in 2008 will soon end for the better with bailout packages and strong government intervention. Instead we faced crises — a seemingly never-ending series, one feeding into another. It all started with the financial crisis in the U.S. that quickly spread across the Atlantic to Europe, and the Mediterranean ‘drift’ that grew into a torrent and consumed North Africa and Southern Europe.

The environment was created by poor governance, spendthrift ways, economic stagnation and high leverage – a heady cocktail that ousted governments, and created unstable markets and wobbly economies across the world.

The emerging markets appear to be the white knight in this rather grim scenario. Encouraged by the prospects, American and European companies like HSBC (HBC), Wynn Resorts (WYNN), Colgate-Palmolive (CL) and Wal-Mart (WMT) among others are expanding their businesses in Asia.

According to Mr. Robert Zoellick, President of The World Bank – the emerging markets have contributed two-thirds of global growth since 2006. However, in view of the weakened state of the U.S. and Europe, the emerging nations need new markets to increase trade flows, drive their growth and that of the world. Mr. Zoellick also appears to suggest that credit is becoming expensive, which could hurt.

Charles Dickens had based his classic on the French revolution. Could we hope for a revolution that would finish off this gloom and doom in one fell swoop? Very unlikely — the mess needs to be cleaned up, and institutions including multilateral bodies, which apparently lacked the preparedness to combat the crisis, will have to be capitalized and financial astuteness and discipline must be made the watchwords for governments and institutions.

Maybe, the situation also calls for radical or disruptive economics, like dismembering the Eurozone and leaving the countries to face the Darwinian principle of natural selection. Recovery will be slow and painful, but future global economic growth will largely be powered by Asia ex-Japan.

COLGATE PALMOLI (CL): Free Stock Analysis Report

HSBC HOLDINGS (HBC): Free Stock Analysis Report

WAL-MART STORES (WMT): Free Stock Analysis Report

WYNN RESRTS LTD (WYNN): Free Stock Analysis Report

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