Look Internationally for Investment Inspiration
Michael Fischer is an investment professional with over ten years of experience, the latter nine at Goldman Sachs. He has bought and sold billions of dollars of investment products on behalf of his clients and himself; and shares his expertise in his new book Savings and Investing: Financial Knowledge and Financial Literacy that Everyone Needs and Deserves to Have!
It is estimated that currently over 90% of US large-cap mutual fund assets are invested in US (domestic) stocks – in fact European stocks are estimated to account for less than 5% of US large cap mutual fund assets, and Asian stocks for less than 1%. Although the percentage of international holdings has been growing, it has been growing so slowly that it still makes up only this tiny fraction of the overall total.
This is fairly frightening given that:
* Unlike during many previous periods, growth outside the United States is significantly stronger than within it – particularly the growth in certain emerging countries. For example, growth in China was just over 10% in 2006, India’s economy grew at just over 8% and Russia at just over 6.5% – growth in the US was just over 3% during the same period and is expected by many economists to decelerate to just over 2% in 2007. This is in contrast to China, India and Russia which are expected to grow again at 10%, 8% and 7% respectively in 2007, and at the same rates again even in 2008. In fact the overall world economy is expected to grow faster than the US, at over 4% in 2007 and similarly in 2008.
* The US level of indebtedness to other nations is growing very fast, as are levels of personal debt among consumers. This is in contrast to China, India and Russia, which are all enjoying huge trade surpluses with the United States. Given the housing slowdown, lower equity mortgage withdrawals, and consumer product inflation, there are increasingly risks that this US spending is becoming impossible to sustain, and that there could be a further slowdown or shock to the system at some point.
* Because of the large deficit, and the fact that increasingly other currencies are now also being increasingly used as the reserve currency of nations that have large trade surpluses, the US dollar has been depreciating and is expected to continue to depreciate over the next 10 to 15 years versus the currencies of faster growing economies, particularly those of the BRICs economies (Brazil, Russia, India and China). This means that as a US Dollar investor, these currencies look attractive on a longer term view;
* One could argue that the US has the ability to continuously reinvent itself based on prevailing conditions and global opportunities, however in the past this has meant a focus on innovation, productivity and importing talent. Furthermore, in the past, these other countries were not developing at the same pace as they are today.
Given these facts, an almost pure US investment focus as the data on mutual funds seems insane. One could in fact make the argument for international investing almost on diversification benefits alone. Capitalism is about positioning oneself for the future, and benefiting from change. It is not without reason that large US multinationals are scrambling to get positioned in these emerging economies – why are investors apparently so far behind?
Opportunities abound for smart investors to benefit from this change, acknowledge it and try to profit from it – that’s what good old-fashioned capitalism is all about.
Michael Fischer is available for interviews.
Please contact Tiffany Alvarado at 212-593-6467 or via e-mail for an interview or a copy of the book.
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