MILLBURN, N.J. (Stockpickr) -- The European PIIGS -- Portugal, Ireland, Italy, Greece and Spain -- have been at the forefront of the news the past few weeks. The sovereign debt of many of these countries has been downgraded. Credit default swaps for these countries' debt have widened out much as in the U.S. during the height of the 2008 credit crisis. As a result, the euro, a currency shared by the PIIGS countries as well as Germany, France and other EU nations, has lost a tremendous amount of value relative to the U.S. dollar and other major currencies. In the UK, a national election resulted in the formation of a coalition government under a new Conservative prime minister.This all raises the question: What are we to do now about international investing? To quote sportscaster Len Berman, "let's go spanning the world" for some investment ideas. The PIIGS in Europe were not major industrial nations to begin with. Greece has several problems stemming from institutionalized tax cheating and an overpaid governmental workforce. The European economy has been declining in relative global importance since the end of World War I, but not until the latest financial crisis was it made so apparent. There was a time when the sun never set on the British Empire; the problem is that there is no longer an empire. The euro could turn out to be one of the biggest monetary mistakes ever. How could rational human beings believe that countries that have fought with and hated each other for centuries would all of a sudden join forces for economic and monetary purposes? Perhaps, maybe, an argument could be made for investing in Switzerland. The Swiss have a relatively high per-capita GDP, one of the most educated populations in the world and a very well-managed currency, the Swiss franc, which is in many ways the anti-euro. Switzerland is known for its pharmaceutical, banking and food processing industries, but there is not a single individual Swiss company that really entices me. Switzerland can be considered the safe haven in Europe. As such, if you held a gun to my head and forced me to invest in Europe, I would allocate some capital to iShares Switzerland ETF ( EWL - Get Report).
What should we expect from American multinationals operating in Europe? For the most part, we should expect that revenues and earnings will be adversely impacted when converting from the euro and other European currencies into the U.S. dollar. Other than that, it really depends on the business sector. Europe is lagging behind the U.S. in terms of the economic downturn and recovery. Think back to 2008, when we wanted to stay defensive in the U.S. and consumers focused on staples (the bathroom and kitchen products) and traded down to lower-priced and inferior goods. McDonald's ( MCD - Get Report) and Procter & Gamble ( PG - Get Report) are examples of companies that will benefit from the trade-down phenomenon while getting hurt from currency translation. The same cannot be said for a semiconductor or automotive company. For example, Ford's ( F - Get Report) recent success in North American may be forestalled by weakness in Europe. North America offers the most compelling investment opportunities. Let's begin with Canada, which enjoys huge natural resources -- oil, gas and metals -- and has a very strong currency. The ETF for Canada is iShares Canada ( EWC - Get Report). As for the U.S., it is experiencing an economic turnaround. The banking system has stabilized. There are still issues with unemployment and government overspending, but most investors are far more familiar with the economy of the U.S. and should think about staying closer to home before straying around the world with their capital. The media and analysts have been infatuated with the BRIC countries -- Brazil, Russia, India and China -- for many years. Brazil remains intriguing especially for its natural resources, as well as for the ramp up to the 2016 summer Olympics. Ever since the 1998 Russian debt crisis, I have been very suspicious of the Russian markets and prefer not to play there. India and China will remain long-term opportunities but currently are in the midst of economic consolidation after many years of explosive growth and stock market corrections. Both of those countries have extensive dealings with Europe and are certain to feel the impact of the eurozone's problems. I sold out of most of my holdings in Brazil, India, China and emerging-market ETFs several months ago.
Rather than BRIC, I prefer the BRISK approach to international investing, focusing on Brazil, Israel and South Korea. Israel is one of the most innovative countries from a technological perspective. Unfortunately, all too many people associate Israel with its political and military issues. Dan Senor and Saul Singer discuss the Israeli entrepreneurial success story in their book Start-Up Nation: The Story of Israel's Economic Miracle, which I highly recommend. The Bank of Israel, Israel's central bank, learned its lessons during the 1970s alongside Paul Volker and the U.S. Federal Reserve and has since had firm control over monetary policy and inflation. The Bank of Israel is headed up by its highly respected governor, Stanley Fischer. While from time to time I hold positions in Israeli ADRs, right now I have limited my investments in Israel to two funds: Aberdeen Israel Fund ( ISL) and the iShares Israel ETF ( EIS - Get Report). Finally, there is South Korea. Many people believe that China's explosive growth has supplanted Japan's economic might. While that may be true to some extent, much of Japan's industry, from cars to technology, is being replaced by South Korean companies. While everyone is focusing on the strength of the Japanese yen vs. the euro, the economy of Japan remains in a generation-long slump, and South Korea is winning out over Japan in the global markets. My exposure to South Korea is through iShares South Korea ( EWY). In summary:
The time may be right to repatriate your global investments to the U.S. Avoid the European countries, with the possible exception of Switzerland. Focus on the BRISK counties: Brazil, Israel and South Korea. -- Written by Scott Rothbort in Millburn, N.J.