Updated November 12th 2013

There is no denying that a generational shift is a significant event so, when an event is earmarked as ending a 500 year economic dominance, it is worth pricking the ears up and taking note.

  • Niall Ferguson is a Professor of History at both Harvard University and the Harvard Business School, author of “the Ascent of Money”, and is now arguably the highest paid public speaker on the planet, commanding a mere $100,000 per appearance. At a recent conference at Coolum in Queensland, Ferguson proclaimed to the audience that after conducting a vast amount of research he had come to the conclusion that “it is reasonable to assume that we are living through the end of an epoch… something that is really the end of 500 years of history”. He was referring to the end of Western economic power and a return to an era of Asian dominance, where Australia would become a “colony of the Chinese empire”
  • These are sweeping statements and, whilst many economic commentators feel that China will surpass the US as the world’s largest economy in the next 2-3 decades, no-one else has come out and said that we will see the end of Western civilisation as we know it for the next 500 years!
  • Extreme views? …most definitely, but Niall Ferguson is a far more learned man than myself, so it is hard to argue that there is not at least some merit in his views. The importance of this kind of thinking is that it is challenging conventional wisdom, and certainly we should at least review our investment philosophy from an extreme angle from time to time to see how it stacks up.
  • Ferguson also raised the point that Australia should commence a sovereign wealth fund – and he is definitely not the first to raise this option. He feels that we missed the boat by taking a short-term view and spending vast funds on short-term measures during the peak of the GFC. Irrespective of your political bent, it would be hard to argue against this point.
  • My view is that Australia is still very well positioned with a very manageable sovereign debt level of 6% of GDP that can be comfortably serviced from year to year – and this level of debt is after the recent stimulus spending that occurred to halt the raging torrent of the GFC. On the other hand, Europe has unsustainable debt levels and it makes a lot of sense that this continent will give way to the burgeoning economies of China, India and other Asian nations. On that basis, we maintain the stance on investing in domestic companies and avoiding direct exposure to Europe and the US, in addition to including a focus on Australian companies that will receive a direct benefit from Asian growth. If Professor Ferguson is right, would it be so bad if we were a colony of a very successful Chinese Empire?