Competitive edge is a real factor. Here in the U.S., we boast that capitalism is the key to our success. Unfortunately, that key has gotten a little rusty lately thanks to the rampant spread of COVID-19 throughout the country. Some areas have locked down or experienced slowed economic growth because of safety protocols that prevented business as usual.
The principles of capitalism – such as competition and supply and demand – have been crippled.1 On the other hand, countries that were hit early on with the pandemic have managed to control the contagion and reopen their economies.2 Market analyst Carl Kawaja believes this comparative advantage gives way to more global opportunities than the U.S. can currently pursue. In his words: “I like to compare it to basketball – a sport where the U.S. historically has been fairly dominant. But then Argentina started getting better, and Greece started getting better, and Spain started getting better. And, the next thing you know, the U.S. lost the Olympics.”3
The good news is U.S. investors can take advantage if international companies pull ahead in the near-term while we struggle to flatten the curve of contagion. If you would like to consider ways to incorporate more global equity opportunity within your asset allocation, we’re happy to work with you. Don’t hesitate to reach out to schedule a consultation.
Regardless of the state of the pandemic, it’s important to recognize that not all the best investment opportunities are in the United States. According to the World Bank, in 2018 the nation represented only 44% of world stock market capitalization.4
Investing internationally does have its risks. But there are ways to do it strategically, such as investing in global mutual funds or ETFs, leaving the day-to-day stock picking to a professional money manager, whose job it is to weigh those risks, such as currency fluctuation, lack of government regulation, economic instability and the disruption of civil unrest. This means professional market analysts do the research and move assets in and out of geographic regions on your behalf.5
In recent weeks, Blackrock commented Europe has a “leg up” over the U.S. as well as other parts of the globe, citing the EU’s health care infrastructure and policy response to the pandemic. The money manager noted the region’s monetary and fiscal support provided a cushion during the pandemic that left many countries able to recover faster economically.6
Investors seeking income may consider global bonds, which have historically outperformed during short-term periods of market turmoil. They also offer the opportunity for long-term diversification benefits to U.S. investor portfolios.7
Content prepared by Kara Stefan Communications.
1 Jim Chappelow. Investopedia. April 6, 2020. “Capitalism.” https://www.investopedia.com/terms/c/capitalism.asp. Accessed July 20, 2020.
2 Ferdinando Giugliano. Bloomberg. July 6, 2020. “Why Europe’s in Better Shape Than the U.S.” https://www.bloomberg.com/opinion/articles/2020-07-06/coronavirus-recovery-why-europe-s-in-better-shape-than-the-u-s. Accessed July 20, 2020.
3 Capital Group. June 24, 2020. “Midyear Outlook: International markets on the comeback trail.” https://www.capitalgroup.com/advisor/insights/articles/international-midyear-outlook-2020.html. Accessed July 20, 2020.
4 James D. Peterson. Charles Schwab. Nov. 13, 2019. “Why Global Diversification Matters.” https://www.schwab.com/resource-center/insights/content/why-global-diversification-matters. Accessed July 20, 2020.
5 Tinesh Bhasin. LiveMint. July 24, 2020. “What to keep in mind if you want to invest in global markets.” https://www.livemint.com/money/personal-finance/what-to-keep-in-mind-if-you-want-to-invest-in-global-markets-11593015469209.html. Accessed July 20, 2020.
6 Callum Keown. MarketWatch. July 20, 2020. “Risks are mounting for U.S. stocks. Here’s where BlackRock says investors should look instead.” https://www.marketwatch.com/story/risks-are-mounting-for-us-stocks-heres-where-investors-should-look-instead-says-blackrock-2020-07-20. Accessed July 20, 2020.
7 David Wakefield. Pensions & Investment. July 13, 2020. “Investing during a pandemic: Three results a global fixed income strategy can deliver.” https://www.pionline.com/Mondrian_globalfixedincome. Accessed July 20, 2020.
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