Thursday, September 27, 2007

Divergence in equities

Everything that can be said here about the market has been said in the few posts before now. The divergence between the U.S. markets and the rest of the industrialized world is now being accentuated. Anyone can pick up the numbers of the European, Asian, and Emerging Markets stock indexes and see that they are far outperforming the U.S. over the last three years. That is now accelerating.

The interest rate give up in the U.S. is not necessarily bad for U.S. stocks in the near term. It could also be good for folks with the wherewithal to have 30% or more of their assets in foreign stocks and the S&P owners who have on average an exposure within those stocks of 48% international in their revenues.

All of this can be neutral or even positive for someone who can and has the insight to invest globally. It is not good for locals, meaning most Americans. Even all but the most aggressive out of nine asset allocation portfolios suggested by Wachovia had an international component suggestion of around 12%, and that might be too much in the minds of the generation of savers now in their 70's and 80's. And of course there is now the concern that one could come in too late, after the party is over.

That's unlikely and investing globally should be part of any asset allocation approach. If international stocks go down, it seems that the U.S. will as well. And the upside is apparent today. Look at the facts--Singapore, Malaysia, India, mainland China funds, Brazil--continuing their 30% plus returns over the last three years. Not sustainable, that's a possibility and I feared that two years ago when I white knuckled an investment in an Emerging Markets fund and loaded up on a Singapore ETF(see December 21, '05 post). It worked out ok.

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