Why Going Global Could Save Your Bacon
March 02, 2009 – by Richard Band
America is the biggest
customer for many of the world’s goods, so a
resolution to our financial problems will stimulate
growth around the globe.
Interestingly enough, a few stock markets overseas
are already signaling that better times could be
coming sooner rather than later.
Bourses in Brazil,
China and South Korea all touched bottom several
weeks ahead of New York last fall, and are now
holding comfortably above their 2008 lows. Even
in Europe, where the indexes have had a rougher
ride, a number of stocks carved out climactic lows in
October and haven’t looked back.
Should the NYSE make a last stab to the
downside over the next few weeks, as I expect, these
stronger-performing markets and stocks will also
feel some pressure. However, they’ll probably snap
back faster, and score bigger gains over the next
12-18 months, than the average U.S. stock — because
their earnings outlook is healthier.
Investing in the
right foreign markets and stocks could, therefore,
go a long way toward helping you recoup the losses
you’ve suffered during the recent downswing.
Foreign stocks are often more volatile than U.S.
issues, at least for an American investor, because
of currency fluctuations. Here, too, though, I
believe the trend will soon shift in our favor.
recent months, the dollar has benefited from a
wave of "safe haven" buying, even though our
Federal Reserve and Congress are doing their best
to undermine the greenback’s purchasing power
through expansive monetary policy and profligate
Later this year, I predict, as the crisis atmosphere
dissipates, international money runners will start
to abandon the buck for higher-yielding and less
inflation-prone currencies. Thus, our foreign
investments should enjoy a currency kicker on top of
any appreciation in local terms.
Next: How to reduce your risk and three investments to buy now.
Three Steps to Reduce Risk
Given the lingering dangers in all markets, it’s
crucial for us to proceed carefully.
three steps I suggest to mitigate risk as you enlarge
the overseas segment of your portfolio.
Step #1: Only invest, for now, in countries and companies
showing greater strength than the U.S. stock indexes.
Step #2: Buy on meaningful pullbacks.
Step #3: In the strongest emerging markets (Brazil, China
and South Korea), spread your bets via an exchangetraded
index fund that encompasses the major
publicly traded names in each country.
Funds to Consider for Your Global Portfolio
With these guidelines in mind, we’ll be looking to
buy iShares FTSE/Xinhua China Index
Fund (FXI) at $24 or less, as well as two other funds. (Get details on all three picks in the March issue of Profitable Investing online now.)
In all three cases, our buy price represents a
level at which I believe the potential upside exceeds
any remaining downside by at least a 3:1 margin. Over the next 12–18 months, I figure that a
package of these three funds (equal dollar amounts)
will rack up a total return of 50%-70%.
Is that so
farfetched? In 2006, the Chinese fund (FXI)
zoomed 83%. The other two funds leaped 116% and 54%. I think I’m being reasonable at least and
Join Profitable Investing risk-free today and read the March issue immediately online. Inside, you’ll get details on all three of the funds Richard is recommending for the global segment of your portfolio. Plus, you’ll also receive immediate online access to Richard’s newest stock report, 5 Recession-Proof Stocks Every Investor Must Own.