U.S., Global Markets Still Viable Investments

By Tim Paradis
Associated Press
Sunday, September 7, 2008

NEW YORK -- While Wall Street is debating which economies abroad might join the United States in a slowdown, investors shouldn't wait for an answer.

Readings from Spain to Japan to still-emerging economies such as China and India point to economic headwinds of varying strength, but observers say it's too early to count out some of the star performers of the international markets of the past four years. At the same time, with the prospects for the U.S. economy still murky, it's likely prudent for many investors to rebalance their holdings rather than make an ill-conceived shift that leaves too much exposure to one economy.

Jeffrey Mortimer, chief investment officer at Charles Schwab Investment Management in San Francisco, likens the U.S. economy to the front of a train that started down a hill when the rest of the train -- the remainder of the world -- stayed on level ground.

"The question is, does the U.S. pull the rest of the world [down] that hill? I think that in fact it may be playing out that way, that the world will now slow. But what the U.S. does is still a wild card," he said.

Still, Mortimer contends that investors who have had a good ride in international investments shouldn't give up on them; Schwab recommends about 25 percent of an investors' portfolio be in international holdings. Mortimer said investors who let international holdings grow to represent too much of their portfolios should consider diverting money to beaten-down markets, including those of the United States.

"Take from the winners and give to the losers," he said.

Steve Tyson, chief investment officer at MFC Global Investment Management in London, has concerns about the U.S. economy but says Wall Street, having been in the doldrums longer than some other markets, could be poised for a rally -- even if areas such as consumer spending remain weak.

"The economic data coming out of the States recently is not as bad as the data we're seeing in Europe or the slowing in Asia. However, I think this is a false dawn in the U.S. economy, and I think the U.S., like Europe, is going to be mired in economic problems for the next year or two whilst we overcome what I call the consumer hangover," he said.

Tyson predicts that the recent drop in oil prices and other commodities will help curb inflation in many economies and could make investors more willing to jump into markets like the United States' that have been hit by economic concern.

"With what's happening with commodities rolling over, I just can't see where inflation is going to come from in the short term," he said. "It's just a reasonable time to be putting money back in."

Some of those who forecast an acceleration of the U.S. economy and a resulting turn higher by U.S. stocks point to the dollar, which has been showing signs of life. The stronger dollar has made the currency more attractive to foreign investors and helped lower oil prices, and in turn, prices at the gas pump. The easing in the cost of fuel and food could help consumers and businesses alike.

"Falling oil prices are an instant, ongoing rebate check into the pockets of consumers," said Rafael Resendes, portfolio manager of the Toreador Large Cap Core Equity Fund in Fresno, Calif. He sees a more robust dollar as a boon for the United States, even if it makes some goods made here more expensive for foreign buyers.

But determining where U.S. and international economies are headed is difficult, so investors should look beyond what has done well and try to make reasonable predictions about areas that could be ripe for a turn higher, Mortimer said.

An investor with too much weight in international stocks could gradually add to small-cap names in the United States, he said, without abandoning either market.

"You're trying to look out the windshield instead of the rearview mirror," he said.

© 2008 The Washington Post Company