Spooked Investors Consider Non-U.S. Portfolios

Diversification has always been a watchword for investors, but the ailing U.S. economy and other areas growing in risk like Greece and Japan have people looking for opportunities …

Diversification has always been a watchword for investors, but the ailing U.S. economy and other areas growing in risk like Greece and Japan have people looking for opportunities with no ties to any U.S. holdings at all. Experts say a mix of commodities investments like gold along with a few safe bets in Asia can be a good balance for investments in otherwise strong economies that are now seeing trouble. A strictly non-U.S. or non-European portfolio is not really favored, however, because certain industries and countries can perform well despite their relationship to the U.S. For more on this continue reading the following article from Money Morning.

After reading columnist Martin Hutchinson’s latest report on the Greek debt crisis last week, one Money Morning reader posed an excellent question: Given the crises already afflicting the markets in Europe and Japan – and the clearly darkening outlook for the U.S. economy – is it possible to craft a "non-U.S. investing strategy" of some type?

The answer, surprisingly enough, is "yes." You can put together an investment plan that largely avoids U.S.-related holdings – in essence, a non-U.S. investing strategy – and you can put it to work.

But before you can do that, you must fully understand the current challenges at hand.

Why You Need a Non-U.S. Investing Strategy

Back in the "good old days," there was always at least one developed region of the world an investor could flee to when the going got rough in the others.

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Japan was ailing? No problem, take a look at the U.S. economy.

Germany was stumbling, causing Europe to wheeze? No sweat, Japan was looking good.

The U.S. market has stumbled? Don’t worry – Europe’s common market offered a nice haven.

Unfortunately, those once-predictable patterns have disappeared – and have been replaced by a highly daunting global-investing triple threat. For instance:

  • In Europe, the Greek default looms as a financial catastrophe that might take down the European banking system.
  • In Japan, a decades-long malaise has evolved into an economic sinkhole because of the nuclear power plant disaster that badly exacerbated the March 11 earthquake-and-tsunami catastrophe.
  • In the United States, where the economy is generating new jobs at only one-quarter of the expected rate – it appears the nation is ready to flatline itself into a double-dip recession.

So it’s no wonder that investors are looking for an investment strategy that doesn’t include any U.S. holdings.

Moves to Make Now

Having identified that as our objective, we put the question to Hutchinson, a former global merchant banker who has advised companies and countries as they worked to craft economic and investing strategies of their own: If an investor wants to pursue a non-U.S. investing strategy, how should one go about it?

"A combination of gold and other commodities and investments in Asia is the simple answer to that question," Hutchinson said. "Places like Singapore, Korea, Japan and Taiwan will be affected by troubles in the West, but they have their own strengths and don’t owe foreigners any money (Japan’s huge public debt is almost entirely owed to its own people)."

And when it comes to Europe, Hutchinson cautioned against confusing the prospects and the suspects: In other words, there are some markets that will be okay – and safe for inclusion in a non-U.S. investing strategy, Hutchinson said.

"Germany and Scandinavia will also be okay, provided they don’t bankrupt themselves trying to bail out Greece and the other PIIGS (Portugal, Italy, Ireland, Greece and Spain), or their own banks," Hutchinson said. "Again, they don’t owe foreigners much money … and they do have strong economies."

This article was republished with permission from Money Morning.


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