Market Commentary for the week of July 29, 2013

Hyperbole.
Throughout the 1980’s, we heard talk from the investment community to “go global”, invest worldwide, perhaps driven by true globalization of corporate exchange and balance sheets, and perhaps also by the need by firms to create “new” products for their consumers to devour.  Mutual funds, brokerages, and private equity companies alike saturated the media with product offerings from every corner of the globe and every possible market sector, including telecom, basic materials, energy and industrial development.  Nothing dampened consumer’s appetite for these various products…except lousy performance.

However, in light of a rapid price expansion in mature Western bourses, the public’s interest in these “undiscovered” regions has once again been piqued.  Given the nearly two decades of financial quandary overseas, it does finally seem appropriate to explore the potential for attractive entry points in non-U.S. markets.  The likelihood of gains in market valuation domestically has become more muted, while improvement in austerity programs overseas might lend itself to nominal gains in the next few years.

To be sure, I expect continuation in domestic equity growth as our own fundamentals improve, but one’s vision of corporate profitability cannot be limited to a specific continent or region.  The siren call of the 1980’s might finally be for real this time.

Relative to U.S. stock prices, foreign shares are trading at a more compelling valuation.  There is no way to know the future, but the fragmentation of regional interests might coalesce in the next decade truly to sustain the possibility of vigorous commerce and cultural exchange.  If the globe can withstand the recent financial crises in Greece, Ireland, Portugal, Japan, et al, it might suggest improved prospects for capital accumulation leading to consumerism.

Besides, these bourses have suffered mightily, and despite being diminished in consumer’s eyes, the true value in these regions lies in their potential not yet realized.  Just as it took a generation to turn “product-hype” into potential, perhaps we now need a generation forward to turn potential into cornucopia.

Fragile.

One still needs to hedge their bets, however.  These data may never actualize, or they may take decades to bear fruit.  Investing is always about assessing risk versus reward, and my proprietary systems are quite good at quantifying probabilities of risk/reward and sector/geography allocation.  Today, Federal policies that might have exacerbated risk a decade ago are abating, and volatility concerns are now at a minimum.

The time to look at opportunity is when no one else will.  While I am not advocating an “all-in” foreign market program, exposure to emerging markets warrants our attention in the long-term.  Like most defensive investors, I tend to look for confirmation of market entry points, earnings expansion, and little probability of exogenous disruptions impeding portfolio performance.  You can see, then, that we might feed into various sectors, like technology and energy, before we allocate to specific regions, entirely.

Don’t fret.  I am not abandoning traditional, U.S. investments.  There are still many opportunities to “catch the wave”, but one must be inclusive, and diverse, in one’s perception of opportunity and profitability in order to maximize gain and reduce risk.  Right now, I’m seeing miniscule, early blips on the radar screen.

At the risk of being early, like our brethren in the 80’s, this time might actually yield some potential.