Monday's plunge was another day of indiscriminate selling across global stock markets in every sector. As many have noted, most other stock markets have fared even worse than our own over the course of 2008, and the recent strengthening of the dollar has exacted even more pain on U.S. investors with international exposure.
As the accompanying chart shows, most major stock markets have shed 35% to 65% thus far this year. (Please note that this chart was complied before Monday's global sell-off). Only China can lay claim to a strengthening currency vis-à-vis the dollar. This means that all other major markets fared even worse than you might think when currency effects are included.
Yet as I noted in this piece, there is every reason to think that the dollar will resume its secular downtrend once this "flight-to-quality" phase has passed. The dollar may stay strong for a while to come, but the twin deficits of trade and budgets are applying increasing pressure to the greenback -- over the long term.
If my weaker dollar thesis is correct, investors can expect a decent currency tailwind in 2009 from foreign investments (except China). Of course, some markets look so scary that you should avoid them despite the possible FX gain.
For my money, the most compelling foreign investments remain China and Brazil. I spelled out my bull case for China in this piece. Brazil's virtues are also numerous:
Sound fiscal policies that have finally tamed the country's notorious patronage system.
Aggressive investments in offshore oil fields, which could be a huge source of income by the time oil is back in its next cyclical upswing.
A rising middle class that is bolstering a range of consumer goods companies.
Scale economies to truly serve as the economic heart of South America.
A nearly 30% slide in the real against the dollar that further underscores industrial and agricultural competitiveness.
Rising Dollar Brings a One-Two Punch to Foreign Returns
Market Analysis Stability, Please 11/24/2008 8:07 AM EST If support starts to hold, we can start looking ahead rather than fearing the present.
Market Analysis Looking Ahead at the S&P 500 11/11/2008 1:39 PM EST Some indicators are looking dire, but earnings revisions are actually pointing upward.
David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.
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