In my post yesterday on greenfaucet I touched on a WSJ article and CNBC segment about Citigroup's recent suggestion that its clients go to 55% foreign in their equity portfolios.
My add on to the greenfaucet post would be about evolution which is a popular word in my posts. You either agree the investment world is evolving or you don't but if you do then it only stands to reason that the rest of the world (well most of it) is developing and moving ahead at a faster rate than the US. It will be those countries that provide a better chance for "normal" equity market returns, something that the US has not provided in a long time now.
In addition to increasing foreign weighting there also need to be some mental adjustments made. I have had an unoriginal theory that the US, being so mature an economy, will have lower highs and higher lows than it used to have--that is to say narrower moves within its cycles.
I think this has been happening slowly over time and we have become gradually used to this-witness the reactions when there are big market moves.
If this is true then it should also be true that countries that are not so mature will still have the volatility that the US used to have, especially commodity based economies, emerging countries and frontier countries.
The point is that if you are going to add more foreign there will be periods, like now, where you may find the volatility uncomfortable. From its April 2003 inception (if I am reading Yahoo correctly about the inception date) though last October EEM was up 350%. YTD EEM is down 30%. Clearly a bad year so far but anyone buying at inception and not lucky enough to have reduced is still far better off over the course of the entire cycle.
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12 comments:
Roger, I agree with having significant foreign exposure 100%. You say in the article "One crucial point about how not to do this is with broad-based funds" and that country specific is preferred. A quick glance at Bespoke sees most countries now down by, seemingly, similar margins (except Shanghai) although via different routes. Of course it doesn't take into account currency movements and the US$ has, arguably, bottomed this quarter although there are many arguments why it could be going lower in the not too distant future.
So if they're (sorta) following the S&P and you think there's still up to 10% for it to fall...
Whew, today hurts. I'm going to probably do the last of my buying for a while and not pay much attention to my port for a while. Too painful to watch most of my long term holdings drop so near to where I originally bought them.
The markets are pricing in a possible McCain presidency. (see http://www.straightstocks.com/current-market-news/mid-morning-35/)
anon 6:12, I think i cover this in the post or maybe the greenfaucet prequel. Over short periods of time you are correct. Over the entire cycle I believe this adds value. Many countries hold up longer and then begin to turn up sooner. They don't avoid the bear but can smooth it out.
It might be prciing in Mccain who knows maybe it is pricing in indecision? Maybe it is just bear markt stuff or mayne the market hates Mccain? I read something that i do not know if it was biased but that said Mccain would leave a much worse deficit
If McCain continues the same Bush administration-esque policies, as most expect, how can the deficit improve? Has McCain made any definitive statements regarding the economy?
What the market is pricing in is the "surprise" interest rate cut we're probably going to get on Tuesday. Look how well home builders are doing today.
dollar gets a bid and theu are going to then cut rates?
they seem to be more concerned about inflation but they are going to cut rates?
there are others.
nothing should truly surprise us but that would surpirse me somewhat, but maybe i missed something while in transit?
"If McCain continues the same Bush administration-esque policies, as most expect, how can the deficit improve? Has McCain made any definitive statements regarding the economy?"
Posted by DaveK | 9:50 AM
Yes, Dave. He said that it is fundamentally strong and we will never surrender......
With short-term interest rates already offering a negative real return and a pressing need to continue attracting foreign investment to finance our deficit(s) I wouldn't just be surprised to see the Fed cut interest rates I would be genuinely flabbergasted. I've heard some arguments that the US is about where Japan was but that dog won't hunt because Japan had savings, lots, and could afford to drive interest rates down to zero while giving birth to a carry trade that circulated their currency for them even in the absence of domestic consumption.
I don't believe we have any of those options but obviously could be completely wrong. Still, if we tried to inflate our way out of our misery by dropping rates and letting the $USD fall further, I'm really inclined to doubt our creditors would allow it.
Roger
Just a wild thought....
stocks overall have done reasonably well over the last 40-50years. Could we now be entering an era where creditors will have the upper hand instead of equity owners?
1) feel free to elaborate
2) also how does your thought reconcile with capital flows into ascending markets--current cyclical downturns in those markets notwithstanding.
Hello,
Stock market is a volatile market. Investors are afraid of entering Indian stock market due to such volatile conditions. FII are the one who are selling
shares like anything. Now we can see some relief rally in the market but still recession can curb the movement of the stock market. In these sort of market investors and
traders are confused like which stock they should select that is stock selection is the major issue now.
Have any doubt lets discuss it and help everyone
Happy Trading,
ShareGyan
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