The world economy is on two different tracks.
On one track, the developed world is experiencing economic contraction and stagnant growth. Countries throughout Europe have stumbled into recession due to austerity measures. Japan persists on its decade-long path of lackluster growth. And the U.S. economy, while rebounding, continues to underperform its potential, recording growth of only 2.2% in the first quarter of 2012.
On the other track, the developing world is recording robust economic growth. Spurred by the twin tailwinds of easy external financing and a dramatic uptick in commodity prices, output from Latin America grew 6.5% in 2010 and 4.5% last year. And the emerging markets in Asia continue their dramatic upward ascent, led by China and India, which are expected to record growth rates this year of 8.2% and 6.9%, respectively.
The corporate poster child of this two-track system is Yum! Brands, the U.S.-based operator of Pizza Hut, Taco Bell, and KFC. In 2011, the company's same-store sales declined by 1% in the United States but grew by 19% in China. Over 70% of its operating profit is now generated abroad. And its shares have outperformed those of its principal competitor, McDonald's (which derives a full 40% of its revenue from Europe), by a staggering 28 percentage points over the last five years.
With this in mind, it should be no surprise that many of the world's smartest investors are choosing companies with less exposure to the developed world and more to emerging markets. Last week, I identified five Dow Jones Industrial Average
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Sources: All geographic sales figures other than DuPont's and Caterpillar's are from the respective companies' most recent annual reports. DuPont's and Caterpillar's are from the companies' most recent quarterly report. Market cap data is from Yahoo! Finance.
While none of these companies currently has the same level of exposure to China as Yum! Brands does, that's not necessarily a bad thing, because it means that there's enormous room to grow.
Take Boeing's expectations for the region as an example: "During the next 20 years, approximately half of the world's air traffic growth will be driven by travel to, from, or within the Asia Pacific region." The company estimates that total air traffic for the region will grow 6.7% per year during the period. To modernize their fleets and meet this growing demand, "Asia Pacific airlines will need 11,450 new airplanes valued at $1.5 trillion." To give you a rough comparison, traffic demand in North America is expected to grow at an annual rate of only 2%, a majority of which is "related to traffic traveling to and from economically dynamic regions in Central and South America."
A rising tide lifts all boats
Conversations about Asia's -- and particularly China's -- economic ascent often end in lamentations about our economy here at home. As Boeing's estimates show, however, these two things are not mutually exclusive, and they may very well be complementary. It's for this reason that having a globally diversified portfolio -- and particularly one that's exposed to the explosive growth in Asia -- is a key to successful investing.
For a handful of stock ideas to get you started down this path, check out our free report about three American companies set to dominate the globe. To get your free copy while it's still available, click here now.