Emerging Markets... Emerging Markets will keep attracting ever increasing sums o
After 1 Month in the U.S., I am convinced that emerging markets will attract ever-increasing amounts of U.S. capital. The U.S. alone has increased foreign stock purchases from a mere 9 Billion $ in 1987, to over 150 Billion $, last year. *
Regardless of the soaring U.S. stock market, foreign stock investments and the management of these, are the fastest growing segment of the U.S. investment profession. The main reason to invest abroad is not necessarily to replicate the global market or to boost returns. Instead, it is to reduce volatility. Foreign stocks do not move in sync. with U.S. shares and thus, provide offsetting gains when the U.S. market is falling. To get the resulting risk reduction you don"t need anything like 60% or your money outside your home market. Yet, even with a third of stock-market money in foreign issues, one finds that the risk reduction benefits are not too reliableÃƒÂ¢Ã¢â€šÂ¬Ã‚Â¦.as unfortunately, when U.S. stocks get really pounded, it seems foreign shares also tend to tumble.
Can large U.S investors get this global diversification by buying multinationals? No, the factor that drives their performance is their home market. U.S. multinationals tend to be owned by U.S. investors, who will be swayed by the ups and downs of the U.S. market. Hence the offsetting volatility is lacking. **
* The Wall Street Journal, July 2, 1997
** The Wall Street Journal, July 29,1997
"Getting Going" By Jonathan Clements
Quoting Mark Riepe of Ibbotson Associates, a Chicago research firm
And Robert Ludwig , chief investment officer for SEI Investment.
Paul A. Renaud.
Experts have suggested that investors can better diversify their U.S. portfolios if, instead of emphasizing large foreign companies, they favor emerging market"s smaller foreign stocks, especially those that are cheap based on value yardsticks such as price-to-earnings or price to book value. **