Do you have international stock exposure in your portfolio?

YOUR INVESTMENTS

Stock-market headlines have been great lately. The US markets are setting daily record highs, and it’s as if euphoria has set in. I am not one of those “sky is falling” types and won’t even attempt to predict when the market will drop, other than by saying it will drop at some point – drop but not necessarily crash. Markets drop frequently but crash rarely, an important bit of information for investors in a world where the only way to get clicks on a link is to make some kind of dire prediction.

While I believe that it still makes sense to invest in the US, there may be more-attractive investment destinations. There are markets out there that provide more value than the US. Keep in mind the most important investing mantra: Buy low and sell high. It’s no secret to readers of this column that for the long term I am a huge fan of investing in international and emerging-market stocks.

Kathleen Fisher of the AB blog writes: “The US stock market has been the best place to invest since 2009 – but that all changed in 2017. For the year through September 30, the 20% returns of the MSCI EAFE, the developed international stock-market index, and 27% returns of the MSCI Emerging Markets stock index have far outpaced the 14% returns of the S&P 500. It’s no wonder some investors question whether the international opportunity has already passed. We don’t think so. In fact, now is an opportune time to ensure adequate exposure.”

Is it too late?

When one sees 20%-plus returns, it’s natural to think that maybe it’s too late to invest. Fisher continues: “While the long-term case for international investing remains compelling, the near-term case does too, despite the strong performance of non-US stocks this year. Earnings growth has been quite robust in the US of late, but it’s been even stronger in non-US markets. That’s a trend we expect to continue, thanks to an improving economic backdrop, expanding export growth, and more stable commodity prices. Plus, after years of underperformance, valuations are significantly lower for non-US stocks than for US stocks. We see potential for non-US stock valuations to rise as investors become increasingly comfortable with the outlook for earnings growth. Increased political stability and broad-based reforms will play a key role, too.”

There are markets out there that provide more value than the US. Keep in mind the most important investing mantra: Buy low and sell high

Innovation

Living here, we are familiar with Israeli innovation and how it’s turned into a big economic growth engine. Well that story plays out through developing countries. In a separate piece Fisher writes: “Take the developing world, where technology has overtaken commodities as the engine for profits. In 2006, 30% of the MSCI Emerging Market Index was comprised of energy and materials stocks. By 2016, that number had been cut in half. On the flip side, the percentage of technology companies in the index has nearly doubled over the last 10 years. And technology firms now comprise six of the 10 largest companies in the index by market capitalization.”

This innovation drive brings with it prosperity, as has happened everywhere else in the world. This will increase incomes, which in turn will create a boom in consumer spending, always a good thing for domestic economic growth.

Trump’s wild card?

These markets may be relatively cheap already, but there is another potential boost. If President Trump succeeds in getting a major tax cut passed through Congress, we will see not just a big US economic boom, but the boom will go global, just like in the mid-1980s after president Reagan cut taxes. It will be like dominoes as country after country will also cut taxes. Maybe even our brilliant minds in the Knesset will follow suit!

There is certainly risk with investing in international and emerging markets, and over the short term they can be volatile. But speak with your financial professional to investigate whether there is room in your portfolio for this asset.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc., or its affiliates.