Because I spent part of the Christmas weekend packing for a vacation that will take my family out of the country, I was thinking about the foreign investing landscape a little. China is still the most overused buzzword to come down the pike since “Internet,” but there is a lot more depth to the overseas picture than just China.
As good investing should always be about finding the best risk-adjusted returns possible, I want to spend some time digging into what the rest of the world might hold in store for us.
First of all, I have been blessed with many opportunities to both vacation and live overseas for extensive periods. The day after I graduated from high school, I shipped down to a backwater village in Mexico to do Peace Corps-type work for two months. Then, my senior year in college I spent the entire first semester studying (at least that’s what they called it) in Spain. I also spent a month riding my bike around Belgium and Holland. These trips have convinced me that Americans enjoy the highest standards of living in the world, by far.
Our incredibly advanced state includes the best and most secure trading and investing systems on the planet. Over the past year, the Japanese stock exchange has experienced two major problems, exposing the truth that the second-most-advanced nation is at least 10-20 years behind our exchanges. In addition, the data coming from American public companies is more reliable than those in any other country. And no surprise, American stocks have been rewarded for these safety and security improvements. No other market in the world has shown investors the types of returns seen here over the last 100 years. Again, not even close.
There are times, however, when some investors believe the added risk of putting money in other countries is worth it. Especially with the globalization push of the last decade. 2005 turned out to be just such a year. Latin America teed our market up and spanked it. Japan smacked it around like a redheaded stepchild. And the performance out of India sent a chill down NASDAQ’s spine. And yes, China did better for investors than any of the major U.S. averages.
The global forces in play right now mean that the United States is no longer the only game in town. Europe will be in a long-term death spiral for years. Asia will keep growing for decades. Latin America offers great opportunities for those willing to do a little work. The United States will stay dominant throughout all of this, but we will go through the pains of diminishing returns due to our size and success.
Short term, many markets, including our own, look vulnerable for a correction. Japan is over-extended on the upside, and Latin America could see a sharp pullback. The difference between America and the betterquality foreign markets in 2005 may be the extent of the correction. I think U.S. markets are due for a bear market of some kind, while places like Japan and India may not see more than 10-percent to 15-percent pullbacks.
Next week, I will highlight some areas that could outperform most averages in 2006. Even though I feel that most of the money next year will be made on the short side, there could be a few sectors that drive higher.
Hauke is the CEO of Samex Capital Advisors, a locally based money manager. Views expressed here are the writer’s. Hauke can be reached at 566-2162 or at firstname.lastname@example.org.