Is This a Good Time to Go Global?
07/25/2008 12:00 am EST
Markets around the world breathed a sigh of relief in the past week, as shares staged intermittent rallies-just about across the globe, causing some pundits to predict that "the bear is back in his den."
I'm not so sure we should be sounding the horn for a global bull just yet, as earnings reports and guidance coming from major global players don't yet support a long-term sustained show of strength.
The reports we've seen thus far have not yet convinced me that companies are out of the woods. In the US, banking giant Wachovia (NYSE: WB) reported losses of $8.8 billion, Yahoo's (Nasdaq: YHOO) earnings declined 19%, Travelers (NYSE: TRV) fell more than $300 million, and appliance maker Whirlpool (NYSE: WHR) saw its income decline by 27%.
But regardless, the main reason for the market's recent gains is tumbling oil prices.
Oil's decline below $125 sent a ripple of excitement through bourses from the US to Europe and on to Asia, giving rise to some very decent numbers on the Dow Jones Industrial Average, the FTSE 100, the DAX, and the CAC 40. Even Asia participated, with the Hong Kong, Japan, and Singapore exchanges joining the crowd. However, Shanghai was less enthusiastic.
How long will this positive trend continue? Who knows? And even if the price of oil continues to decline (as we all wish!), the consequences of its sharp rise are now being felt in many companies whose fortunes are strongly tied to the use of oil in the products they make (like Norsk and Whirlpool, for example).
Therefore, the question of going global is no longer an easy or quick decision. No more can investors throw a dart and receive the 25%+ annual returns they enjoyed from emerging markets until recently. Yet, there are still niches-especially commodity-linked economies such as Brazil and Russia, where many good returns are still possible. However, if oil continues to decline, they also won't look so great.
Therefore, it's imperative that you carefully research your global investments, just as you have become accustomed to doing for your domestic issues. But, as I noted last week, global investing includes some additional risks that you may not encounter in domestic investing. Those risks encompass political changes, currency differences, and regulatory matters-all of which may considerably affect the fortunes of your intended investment.
It is essential-particularly if you are focusing on individual stocks-to thoroughly do your homework to assess these risks and how they may affect your investments. That's why for most investors-especially global novices-mutual funds and exchange traded funds (ETFs) may be better options.
But even if you only invest in funds and ETFs, you should also know more about the markets and economies in which you invest-what products and services they offer, their demographics, supply and demand, growth, the legal system, etc. That way, you won't be surprised if major economic or political events affect the market's behavior-for good or bad.
This week, Global Investing focused on a "bright" issue: gold. In a spirited interview, veteran investor Harry Schultz told me that his expectations for gold haven't dulled in the least.
Carlton Delfeld wasn't so rosy on his outlook for the international housing scene, however, noting that we are indeed in a global housing slowdown. But he offered hope that markets eventually will begin to shake off the gloom and doom.
It's been quite an exciting week in the markets-and an exciting debut for Global Investing, too. Please come back and visit us next week and in the future!
Nancy Zambell edits Global Investing for MoneyShow.com. Her opinions are her own and not necessarily the views of InterShow or MoneyShow.com.