Amid recession talk, a declining housing market and other economic woes, many U.S. investors are working to storm-proof their portfolios by looking abroad to foreign markets, investment experts say.
“There definitely has been a trend toward foreign investment,” said Mickey Robbins, an investment advisor and senior vice president at Patten and Patten in Chattanooga.
The U.S. stock market is in decline. According to the Investment Company Institute, which studies mutual funds, the combined assets of the nation’s mutual funds decreased by nearly $303 billion in January. Stock funds decreased 7.6 percent from December 2007 to January, according to a report by ICI.
Much of the capital being pulled out of the U.S. stock market is being placed in stocks and bonds in developing countries like China, India, Russia and Brazil, said Chris Hopkins, vice president of investments at Barnett and Co. in Chattanooga.
“Those four economies are the global drivers of growth right now,” Mr. Hopkins said.
Along with developing countries, the strong Euro has given rise to American investments in European markets, said Mr. Robbins.
Over the last 10 years the Chinese economy has grown 10 percent annually, and India’s economy has seen similar growth, Mr. Hopkins said.
In contrast, annual growth in the U.S. is around 2.5 percent, Mr. Hopkins said.
“Those economies are going to outgrow us consistently into the foreseeable future,” he said.
In conjunction with fear about the future of the U.S. economy, the weak dollar has also driven interest in foreign stocks, said Mr. Robbins.
“The weak dollar tends to magnify the advantage of foreign stocks to an American investor,” said Mr. Hopkins. “Everything that you buy somewhere else is expensive, the impact is the opposite when you convert a foreign investment into dollars. The dollar is so weak it doubles your return.”
On average in 2007 foreign stocks were up about 8 percent in their local currencies, but for U.S. investors who bought those stock in dollars those stocks were up 16 percent, Mr. Hopkins said.
Though an interest in foreign investment has grown over the last 25 years, there is still an emphasis on American stocks, said Bento Lobo, an associate professor of finance at the University of Tennessee at Chattanooga.
“There remains a home bias in investing because of a lack of information about foreign markets and concerns about exchange rate risk,” Mr. Lobo said.
There are caveats to fervor over overseas investments.
For one, growing interest will make foreign assets more expensive, Mr. Robbins said.
Also, though foreign economies like China and India are not as dependent on the U.S. as they once were, problems in the U.S. markets do tend to spread, and the payoff for overseas investment may not be as great as expected, said Mr. Lobo.
“American troubles are exported abroad,” Mr. Lobo said. “America tends to lead foreign markets. There is a limit to the benefits of investing abroad.”
Joan Garrett has been a staff writer for the Times Free Press since August 2007. Before becoming a general assignment writer for the paper, she wrote about business, higher education and the court systems. She grew up the oldest of five sisters near Birmingham, Ala., and graduated with a master's and bachelor's degrees in journalism from the University of Alabama. Before landing her first full-time job as a reporter at the Times Free Press, she ...
