This Year's Hot Emerging Market at Davos? The U.S.A.

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2014 World Economic Forum in Davos

World Economic Forum

The World Economic Forum has long been something of a coming-out party for emerging economies, with developing countries dispatching politicians and executives to the Swiss resort of Davos to drum up interest. This year, the big magnet for investment looks to be an older player on the global stage: the United States.

While Brazil stagnates, Russia enters a recession, and India struggles to implement economic reforms, the U.S. is booming as energy prices plummet and Silicon Valley dominates global tech. Though yesterday’s retail sales report damped enthusiasm about the scale of the U.S. rebound, the American economy grew at its fastest pace in over a decade in the third quarter of 2014, reaching an annualized rate of 5 percent.

“The pendulum has shifted,” said Jacob Frenkel, chairman of JPMorgan Chase & Co.’s international arm, who’s been attending Davos since the mid-1980s. “The U.S. is now regaining its position in the world economy. It is the place where the recovery took hold in the most robust way.”

The Davos agenda continues to focus more on emerging markets than on the U.S., but the tone at this year’s meeting (Jan. 21-24) is less upbeat about prospects in the developing world. The 2014 program featured sessions such as “Fulfilling North Africa’s Promise” and “Eurasia: The Next Frontier?”

Next week, a panel titled “Achieving Africa’s Growth Agenda” will weigh the impact of falling commodity prices. Another, “The Arab World Context,” will address rising youth unemployment and escalating social tensions. The U.S., meanwhile, will have a higher profile thanks to the attendance of Secretary of State John Kerry, the highest-ranking official the Obama administration has ever sent to the conference.

Beyond the podium at Davos -- in the corridors, cafes, and bars -- much of the talk will be about America’s remarkable resilience, said Martin Reitz, who oversees the German business of investment bank Rothschild. Companies “not present in the U.S. or who are sub-scale in the U.S. are thinking about how to address this.”

Stranded CEOs

Stuck in a small ski town surrounded by snow, forests, and mountains for the better part of a week, leading CEOs use the conference to catch up with other executives, and the talk often turns to acquisitions. That could lead to more deals like the $259 billion in foreign takeovers of U.S. companies that took place in 2014, more than double the previous year’s total and the highest since 2007.

Germany’s Merck KGaA topped that list last year, with a proposed $17 billion takeover of Sigma-Aldrich, a producer of chemicals used in laboratories.

“If you want to participate in innovation, you have to be in the U.S.,” says Merck Chief Executive Officer Karl-Ludwig Kley. “No country on earth is investing as much in innovation.”

The interest is global. In May, Japanese distiller Suntory completed a $16 billion acquisition of 219-year-old bourbon producer Jim Beam. A few months later, Calgary-based Encana made a $5.9 billion bet on the Texas oilpatch with its purchase of Athlon Energy, the largest-ever U.S. oil and gas deal by a Canadian company. And in March, Qatar’s sovereign-wealth fund joined a group of investors that agreed to buy half of American Express’s business-travel unit for $900 million.

Safest Harbor

The American uptake of some products sold by foreign firms remains small. Franck Riboud, chairman of French yogurt-maker Danone SA, often describes the U.S. as an “emerging market” for the dairy product; only 6 percent of households buy it monthly.

For big companies, “the U.S. is the safest and best harbor,” says Manuel Falco, the head of corporate and investment banking for Europe, the Middle East, and Africa at Citigroup.

Despite the shift in sentiment, the Davos crowd is a long way from writing off Asia, Latin America, and Africa. Based on purchasing power, China last year overtook the U.S. as the world’s largest economy, according to the International Monetary Fund, and Indian Prime Minister Narendra Modi is seeking broad reforms to increase growth.

Putin’s Stability

“Most companies I meet with believe these are going to be important markets for a long time,” said John Veihmeyer, global chairman of consultancy KPMG, who will be in Davos next week. “You don’t want to make decisions today you will look at in 10 years and regret.”

Still, the atmosphere in Davos will be markedly different from 2006, when India’s government and companies sponsored parties and dinners with a campaign called “India Everywhere,” or three years later when Vladimir Putin took the stage to promote Russia as an island of economic stability in the global financial crisis.

The World Bank this month cut its forecast for global growth while noting that the U.S. is pulling away from other major economies. It expects the American economy to expand 3.2 percent this year -- faster than the global average of 3 percent. While the lender said China will grow by 7.1 percent, that’s down from the 7.5 percent pace it projected in June.

This year, “the strength of the U.S. is definitely going to be a major theme in Davos,” said Dominic Barton, global managing director at consultant McKinsey & Co. “The U.S. is very economically dominant and powerful, and I think it’s just going to get better.”

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