Call it globalization, if you want. It’s the long and ongoing process whereby the world seems to shrink a bit every day. Its hallmarks are increasing trade between countries and a steady flow of people and ideas across blurred national borders.
This process of integration has been going on, in fits and starts, for centuries. Perhaps the most famous and influential trade routes in history were those of the old Silk Road. Now unfolding before our eyes is a sort of new Silk Road. Trade surges across the lands of Eurasia and the Middle East. This flow of trade creates important new opportunities for investors.
But before I get into how this is happening today and how you can take advantage of it, let’s look over our shoulders into the slipstream of markets past. Certainly, it’s not usual practice among investors to look to learn something from a man who has been dead for over 600 years. But as Charlie Munger, the witty vice chairman at Berkshire Hathaway, likes to point out, there are billion-dollar answers buried in history books.
In this case, the story of Ibn Battuta is one that informs. He led a truly amazing life. His tale is wonderfully retold in Ross Dunn’s book The Adventures of Ibn Battuta: A Muslim Traveler of the 14th Century.
Ibn Battuta’s story begins in 1325, when at the age of 21, he left his home in Tangier, Morocco. Battuta was off to make the pilgrimage to Mecca. But his journey would prove unlike any other.
Ibn Battuta did not see Tangier again until he was 45 years old. Until then, he chose to wander the globe. Battuta crossed over 40 modern countries and covered over 70,000 miles. He became one of the greatest travelers the world has ever seen. He left behind a travelogue of his life’s journeys filled with details on the places, people and politics of medieval Eurasia and North Africa.
His adventures reveal, as Dunn writes, “the formation of dense networks of communication and exchange.” These networks “linked in one way or another nearly everyone in the hemisphere with nearly everyone else.
“From Ibn Battuta,” Dunn continues, “we discover webs of interconnection that stretched from Spain to China, and from Kazakhstan to Tanzania.” Even in the 14th century, an event in one part of Eurasia or Africa might affect places thousands of miles away.
In reading the book, this multinational aspect of Ibn Battuta’s world really fascinated me. The Mongol states allowed merchants to travel freely in their realms, regardless of religion or origin. This led to the creation of a worldly, prosperous and traveling elite, transmitting ideas as well as goods across countries. For these traders, the focal point was not countries, but cities. They were also, in Dunn’s words, “free from the grosser varieties of parochial bigotry.” It is one reason why some historians say that during the medieval period, the Islamic cultures came closer than anyone else in creating a common social order.
Needless to say, it was a time of great growth and trade. Households enjoyed porcelain from China, pottery from South Arabia, gold and ivory from Africa, animal skins from India, rice from the Ganges Delta and much more. Ships sailed the Volga, their holds filled with grain from the steppes, timber from the mountains of Crimea and furs from Russia and Siberia, along with salt, wax and honey – all carried by a hodgepodge of peoples: Egyptian traders, Turkish nomads, Greeks, Circassians, Alans… even Florentines and Venetians.
China, too, played an important role. The huge Chinese junks, the ocean liners of the day, expanded trade across the Chinese seas to the Bay of Bengal. Populations soared. Cities multiplied, along with a vast network of canals and roads.
That, to me, is a beautiful portrait. I think the new Silk Road is a revival of that kind of period. It’s a kind of integrated economic bloc that stretches from the Mediterranean to the Sea of Japan.
Just look at the booming trade between China and the Middle East. It was a trickle of only $6 billion in 1995. By 2006, that number swelled to $69 billion. The numbers for 2007 are not in as I write these words, but my guess is we’re approaching $100 billion by now.
The story gets more powerful as you dig. Bloodless statistics take you only so far. But look at what companies are doing. Sinopec, a Chinese company, invested $100 billion in an energy project in Iran. That’s no two-week trade. That’s a marriage. Or look at Damac Holding, one of the largest developers in Dubai. It recently put $2.7 billion in a real estate complex in Tianjin, China. These things would have been unthinkable even 10 years ago.
The possibilities of today’s new Silk Road are sometimes mind-boggling. Consider this: There is huge demand for an overland route from Europe to Asia. Imagine it: a steady stream of trucks leaving the river towns of the Yangtze Delta, bound for the trading cities of Eastern Europe.
It’s not far-fetched. China is constructing 12 highways to link its western Xinjiang province with Central Asia, which could eventually link up with Europe. China plans to nearly double its highway system, from 28,000 miles to 53,000 miles by 2010 – that’s only two years away!
The ports, too, are busy along the new Silk Road. Global Insight says container shipping volumes between Asia and Europe grew 17% in 2007. Total volume was double the 2003 level. And the ships used today are, on average, 2? times the size of the largest ship a decade ago.
Many ports can barely handle the volume. “In about six years, the capacity of India’s ports needs to double,” says Amit Desai, executive director of Mundra Port in India. Mundra Port is the largest publicly owned port operator in India. Its shares doubled on its first day of trading in Mumbai. The offering was 100 times oversubscribed. That’s like having a line of people out the door waiting to buy your stock. It’s as if you were cooking the hottest tandoori this side of the Ganges.
Shipping companies are actively pursuing new routes. Perhaps through the ice-free Arctic passages, as I’ve written to you about before. Right now, Singapore is still king. It is the world’s largest container port hub. Singapore, sitting in the Strait of Malacca, is the hinge that links Asia’s shipping lanes with Europe. (I’d love to get to Singapore sometime in 2008.) Some of the excess may bleed into airfreight. China alone plans 48 new airports over the next decade, to add to its current total of 130. It’s been called the “Silk Road in the sky.”
It’s not all peaches and cream, of course. There is all of that pollution and environmental destruction, for one thing. It’s a concealed debt, to borrow author James Kynge’s expression. The region will have to deal with that eventually. Even in the cleanup, there will be opportunity for investors. Of greater concern are rising social tensions and political minefields. Mankind has often proved adept at getting in its own way.
Still, as an investor, I want to be a part of this new Silk Road. In my last two letters to you, I’ve recommended stocks in businesses that have no U.S. operations. This is not an accident. These companies service markets right in the heart of the new Silk Road. In addition to these, companies that own the commodities the new Silk Road needs should prosper. It will need lots of copper, iron ore, nickel… as well as oil, coal, natural gas and much more, including clean water.
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