Sep 21 2008
A case against investing in some overseas markets right now.
Back in 2004, financial advisors such as Martin Weiss and Larry Edelson began to advocate investing in China, Brazil, and other far flung places. Their argument was simple: the U.S. was headed for bad times. Their team of experts began to introduce their readers to new names like Posco, Gerdeau, and Lenevar. With on the street reporting in China and Singapore, they kept everyone up to date on how construction had changed, how the population was on the move, and why they believed that the next bull markets were going to be overseas.
This new push to head overseas had a huge backlash of criticism from some of the biggest names on Wall Street. Their gripe: who in the world would invest in some outside market when the best market in the world is right here in the good old U.S.A.? During the 2005 money show, they even argued how irresponsible it was to invest in outside markets at all because you were putting your whole portfolio at risk from government policies that you didn’t understand.
I have not always agreed with Weiss and his team, especially during the great bull market of the 1990s. He argued constantly then that the market would crash, but I felt the sentiment was in the favor of crazy P/E ratios and technology. This time I agreed with Weiss about global investing, and I was glad to make money overseas right along iwth them. But now my mind has changed again.
If you have a great deal of investments overseas, such as a global fund or any global ETF, listen carefully. It is my belief that you need to choose your overseas investments very carefully from here on out to avoid losing money. China, for example, will no longer have a rising market the way it has in the past several years, and not just because the Olympics are gone.
Consider that we have been one of China’s biggest customers for many years. When we get a cold and quit buying, China gets a major bout of the flu! With the United States economy in trouble, buying overseas has been seriously affected. A July/August edition of CFO stated that 10,000 factories in southern China have been closed.
Another reason China is hurting is that it seems to lack the infastructure to deal with simple problems. CFO cited last year’s snowstorms in China as an example. It slowed everything in terms of getting the goods to market because what normally would have taken a couple of days to clena up here, took weeks over there.
CFO also interviewed firms over there who were disgusted with the amount of scrutiny the government gave their businesses while rubber stamping the Chinese businesses. It seems reasonable to expect fair play in the inspection processes. For these reasonss, 17% of the firms they had interviewed said that they were planning to move their plants out of China.
The slow leak of employment and the recent hike in fuel prices there as the government pulled away from subsidizing fuel, will put unprecedented stress on local busineses. The conclusion of the Olympics will naturally slow the construction and services industries there, too. A slowing economy does not produce a booming stock martet.
Contrast that to Vietnam, which seems all too ready to accept those fleeing factory owners and Australians who are enjoying wonderful economic times, and the conclusion can only be this: only the most careful global investing will be profitable in the next few years. Be careful whose advice you take, and make sure they can offer more proof than just new skyscrapers as evidence.
