With spectacular autumn colors predicted, thrilling pennant races in both the American and National Leagues and a tight presidential election, the U.S. will be a pretty exciting place to be this fall. So exciting, in fact, that equity markets here could overshadow the rest of the world.
But don't give up hope on international investing. There is still money to be made outside the United States. You just have to careful, and keep thinking long term.
When I last
surveyed the world at the beginning of the summer, the big cloud hanging over international investment was the uncertainty surrounding
rate hikes -- how high they would go and whether they would cause the U.S. economy to screech to a halt. The Fed may raise rates only for the U.S., but its actions are felt around the world with only a few exceptions. The irony was that growth prospects in Europe, Asia and Latin America looked pretty good.
That changed after the Fed seemed to stand aside in August.
"We've already had a soft landing in the U.S.," says Michael Hartnett, international economist at
. "The hard-landing risks are now greater in Europe and Japan." Likewise, in emerging markets, Hartnett believes "It's going to remain tough."
Of course, rising oil prices, which reached a 10-year high this week, muddy the investment waters for everyone, including the U.S. On Thursday
warned high oil prices could push the U.S. into recession, making the soft landing suddenly harder.
But if the price of oil continues to rise, the impact could be even more severe in other countries. In Europe, French truckers protested the higher prices this week and blocked traffic into the Chunnel. High oil prices could also combine with the continually slumping
euro, which reached its all-time low this week, and produce inflation. And in Japan, oil prices represent a potentially damaging blow to the nascent economic recovery in that country.
Nevertheless, it is always smart to diversify and include some overseas investments in your portfolio. They may be a little tougher to find this fall, but they are out there.
"The key word is quality," says Hartnett. "In all markets there are quality stocks. As the old adage puts it, it is a market of stocks, rather than a stock market."
For example, in Japan, where companies continue a dramatic restructuring, Tomoko Fujii, Japan analyst for
Salomon Smith Barney
predicts record corporate profits by next year, and a 25% rise in share prices for the top, nonfinancial stocks.
In Europe, the way to beat the higher oil prices is through energy and media stocks, says
Credit Suisse First Boston's
Duncan McCourt. If the euro heads back up, utilities, retail and health care will look better. If oil goes down, and the euro stays cheap, industrials and autos will outperform.
Confused? The best way to access such regions or countries is through mutual funds. The best-performing, European mutual fund right now, and one of the best-performing funds in any category is
Deutsche European Equity Fund. It is up 97% this year, and while it up only 3% the last three months, that is still almost four percentage points better than the European stock-fund category average decline of 0.84%. It requires a minimum investment of $2,500, and carries a 1.5% expense ratio.
The best-performing Japan fund that is readily available to retail investors is the
Matthews Japan Fund, although that top performance comes on a 1.6% decline this year. Japan funds as a whole have declined 22.6% this year. It requires a $2,500 minimum investment and carries an expense ratio of 2%.
Of course, the oil-producing countries will benefit from the high prices. That may improve Russia's prospects for the fall. One of the best ways to access Russia these days has been the
Lexington Troika Dialog fund. It is up 29% this year, and has risen over 100% the last 12 months. It requires a minimum investment of $5,000 and carries an expense ratio of 3.32%.
Another interesting play could be emerging-market debt mutual funds. Many major oil-producing countries, such as Venezuela, have few companies in which to invest, and higher oil prices are improving the ability of the governments to pay their debt. Indeed, some of the best-performing funds this year have been emerging-market debt funds. Of those geared toward the retail investor, the best performer is the
J.P. Morgan Emerging Markets Debt Fund. It is up 18.3% this year, requires a $2,500 minimum investment and carries an expense ratio of 1.25%.
Of course, the past is never prologue in investing. The price of oil is a huge wild card this fall. Good thing we have the fall foliage and baseball to relax us.
David Kurapka's Global Portfolio column appears Mondays, Wednesdays and Fridays on TSC. In keeping with TSC's editorial policy, he does not own shares in any companies or mutual funds mentioned in this column. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback and invites you to send it to