Deleveraging is an ugly word for a painful process one that will define the investing backdrop in the developed world for many years to come.
Working out what to do with your money in the environment it creates of low growth, low inflation and low interest rates is one of the key questions facing investors today.
There’s no better illustration of how the world changed in 2008 from rampant debt accumulation to debt reduction than my chart. I take something else important from this image how much easier it is to build up borrowings than to pay them down. At the current pace, just paying back the previous seven years’ worth of debt could be the work of another 20 years or so. And let’s not forget that this problem has been building for a lot longer than that.
The past week has provided a couple of insights into just how difficult and time-consuming the process of rebuilding a healthy economy can be after a debt binge. After October’s disappointing public sector borrowing figure, the Chancellor will have no choice but to admit in the Autumn Statement that getting the deficit under control will take three years’ more austerity than he had hoped.
That said, his problems pale into insignificance compared to the catastrophe unfolding in Athens. The disagreement between the IMF (Other OTC: IMFAF.PK - news) and the European legs of the troika is focused on the ratio of Greece’s debt to its GDP fully eight years hence. These things are not quickly fixed.
In such an environment, it is hardly surprising that when a good example of robust growth heaves into view, investors should pounce on it. Last week, that example was Peroni-to-Foster’s beer group SABMiller (Dusseldorf: 981602.DU - news) , whose better-than-expected half-year results were greeted with a 6pc share price hike.
SABMiller is a good example of the kind of high-quality, multi-national, large-cap stock that looks increasingly attractive in the post-crisis world. In the six months to September , profits rose 12pc, earnings per share by 14pc and the dividend by 12pc. Its (Euronext: ALITS.NX - news) largest regional profits generator, Latin America, saw trading profits rise by 15pc on the back of higher volumes and fatter margins. Deleveraging? What deleveraging?
Perhaps not coincidentally, SABMiller (Xetra: 861038 - news) is one of the European stocks highlighted by Credit Suisse (NYSEArca: CSMA - news) in a note published this week on thematic approaches to finding growth in a persistently low-growth world.
It is a great example of how investors can tap into the simple but powerful emerging market consumer growth story. As the bank points out, when GDP per capita in the developed world was at the same level as it is today in emerging markets, consumption growth was running at 5pc a year above inflation. Higher wage growth and a falling savings ratio mean that, whatever unfolds in the depressed markets of Europe (Chicago Options: ^REURUSD - news) , this emerging growth story still has a long way to run. The important point for investors is that often the best way of accessing this growth is through Western multi-nationals. Credit Suisse’s research shows that the emerging market growth over the past five years of a group of leading developed world brands like Nestle (BSE: NESTLE.BO - news) , Unilever (Other OTC: UNLNF.PK - news) , Coke (NYSE: KO - news) and Colgate has averaged around 10pc. In a stagnant world that is not to be sniffed at.
In many cases, these big Western companies enjoy strong market positions and have a wide range of products that mean they can continue to exploit growth as per capita incomes rise and tastes become more sophisticated.
Of course, a good story is only part of the investment equation. The price you pay at the outset is the key determinant of how an investment turns out. And it is clear that in recent years the growing appeal of quality growth stocks has seen investors bid up their price significantly. They now trade at a modest but noticeable premium.
But before you write off quality growth as an investment theme that has run its course, consider this: growth stocks are changing hands on average for about 15 times expected earnings today. That compares with a little under 50 times earnings for technology stocks in 1998 and a little over 50 in the early 1970s when the Nifty Fifty ruled the roost.
In a world in which growth is scarce and could remain so for years to come, investors will be prepared to pay up when they find it. No wonder SAB (LSE: SAB.L - news) has risen by a third in the past year.
Tom Stevenson is an investment director at Fidelity Worldwide Investment. The views expressed are his own. He tweets at @tomstevenson63