CIO Insights

FI RST Q uarter 2011

Making Slow but Undeniable Progress

The overall economic and market outlook remains mixed. Yet, we are certainly in a much
better position than we were one or two years ago. For the U.S. and Europe, the path to
continued economic recovery will continue to be challenging.

Slow Progress for the 30%. These countries have generous

U.S. Economy government-funded retirement programs
that begin when citizens reach their early
The U.S. economy continues to recover
60s, while the average life expectancy is 80.
from the Great Recession. Businesses have
The challenge is not simply cutting current
recovered, as they have held tight control
spending but redefining the social contract
over their costs, limited capital spending Enrique Chang
between government and citizens to reflect
and generated impressive earnings growth Executive Vice President and
the reality of fewer workers having to
on low revenue growth. Consumers have Chief Investment Officer
support more retirees.
been slower to recover due to continued
high unemployment and indebtedness.
Home prices remain weak, which also
Emerging Markets Are Growing
weighs on consumer spending and Emerging and developing markets,
confidence. Improvements in employment especially in Asia, are enjoying strong “Investors need to evaluate the
or indebtedness will be slow over the next economic recoveries, making them attractiveness of higher growth
several quarters because overall economic attractive to investors. This is also the case
for some developed economies with strong
markets and companies against
growth remains low by the standards of past
post-recession recoveries. Deleveraging export-oriented, resource-based industries their risks.”
is a difficult process, especially in an such as Australia. Investors need to evaluate
environment where real wage growth is very the attractiveness of higher growth markets
low if not zero. Nonetheless, we are seeing and companies against their risks. One risk
encouraging signs in the 2010 retail holiday is overpaying for growth, which can become
sales data that some optimism is returning. a problem when investment flows surge into
Consumer spending is forecast to increase these markets. A second risk is low liquidity
between 3 to 4% over 2009—the largest as the stocks of many emerging market
increase in spending since 2005. companies have limited shares outstanding
and can trade very thinly. And a third risk
Europe’s Challenges is geopolitical. Many of these countries
lack the strong democratic institutions and
In Europe, concerns about the growing
legal protections we have come to take for
indebtedness of some eurozone countries
granted here in the U.S.
(those that are part of the European
monetary union and use the euro) continue.
While the popular press has focused solely
Diversification Remains Key
on two current statistics—government to Investing Success
budget deficits and outstanding debt Overall, we are in a much better position
(both often normalized as a percentage today than what we faced one year ago or
of the country’s gross domestic product1, (certainly) two years ago, when it seemed
or GDP)—there is a longer-term concern there might be no bottom to how far The opinions expressed are those of Enrique Chang
for investors. The populations of these asset prices could fall. But with the global and are no guarantee of the future performance
countries are rapidly aging due to low economic and market outlook remaining of any American Century Investments portfolio.
International investing involves special risks, such as
birth rates and longer life expectancies. mixed, an investment strategy based political instability and currency fluctuations. Investing
Today, approximately 20% of the eurozone on broad diversification by asset class, in emerging markets may accentuate these risks.
population is over 65 years old. In thirty investment size and style, and geography is
years, that statistic will increase to nearly critical to long-term investing success. For educational use only. This information is not
intended to serve as investment advice.

Gross domestic product is the total market value of all final goods and services
1

produced in a country in a given year, equal to total consumer, investment and

government spending, plus the value of exports, minus the value of imports.

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