Don’t Ignore Opportunities in Foreign Markets
Thursday, April 19th, 2007
By George Leong, B.Comm. for Profit Confidential
To achieve superior, above-average returns, a key factor that many investors fail to understand is the need to diversify outside of one’s borders. The reality is there is a world outside of the U.S. and Canada that offers far more growth opportunities than domestic markets. Don’t get caught up in investing in domestic companies as a way to grow and protect local companies. At the end of the day, what we really care about is achieving the highest returns possible, and this is where investing in foreign stocks play a major role.
Simply take a look at some of the emerging markets around the world including Japan, India, South Korea, China, and Latin America. The benchmark Shanghai Composite Index (SCI) just touched another record historical high of 3,596.44 on April 16, 2007, up an astounding 166% from its 52-week low of 1,353.40. Now, compare that to the 17% and 9.52% gain in the Russell 2000 and NASDAQ in 2006.
Now, while there is a need to invest some of your capital in foreign markets, you must also be aware of the added risk of investing in markets that have shown superior growth.
What happens is, if everything else is equal, the risk associated with investing in markets in such emerging areas as Latin America and Asia is much higher than investing in U.S. or Canadian markets.
If you are invested in some of the emerging markets such as Argentina, Brazil, Mexico, or even China, you need to be extra cautious about your investments. The February selloff in China reflected the risk.
Once global fears increase, stocks in emerging markets can accelerate their losses. If you are up on these stocks, you may want to set a price point to exit in order to prevent major losses if the tide turns lower.
So while the added risk from foreign exposure is real, you should not ignore these markets. Allocate some capital to foreign stocks or funds.
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Tags: chinese economy, chinese stocks
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
