As 2019 comes to an end, our thoughts turn to investing strategies for 2020. With this issue in mind, we noticed an article on CNN Business, about it being time to dump U.S. stocks.
For all the concerns about slowing US economic growth, there’s consensus that stocks can continue to rise. But for the best returns, strategists and portfolio managers have indicated they’ll look elsewhere.
Neil Dwane, portfolio manager and global strategist at Allianz Global Investors, thinks that the heated run-up to the 2020 election is likely to weigh on prices.“While the United States has offered investors strong returns for many years now, the country will likely spend much of next year grappling with growing political uncertainty,” he wrote in an op-ed for CNN Business. “The real investment opportunities in 2020 may very well be found abroad.”
Our belief is that the very partisan election campaign will not adversely affect the stock market so long as earnings continue. However, the now-certain-to-be-long-term trade war, the ever-increasing US debt, and a generally slowing global economy are likely to affect the U.S. market. No matter why it will happen, the U.S. market is likely to slow down and well-chosen investments elsewhere will flourish.
Where to Invest outside of the USA
In our recent article about safe investments in an uncertain world, we published a map of the world from OECD, color-coded for expected economic growth. The only nation in the Western Hemisphere predicted to experience better than 3% growth is Colombia. In Europe, only Spain, Poland, and Turkey are likely to grow faster than 3%. And all of the 4%, 5%, and better growth rates are expected to occur in South and East Asia. India stands out with a predicted rate of economic growth greater than 6%.
The ABC (anywhere but China) movement is likely to continue and countries like Indonesia, Vietnam, and India are likely to benefit. A good place to look for cues about where the smart money is going is the World Bank’s yearly report on foreign direct investment. Although the world’s two largest economies, The U.S.A. and China receive the greatest cash inflows, the table that the World Bank publishes each year gives you a good idea of where else investment capital is going and if the trend is up or down.
How to Safely Invest Outside of the USA
Since you probably do not speak many foreign languages and do not have someone “on the ground” in Indonesia, India, or anywhere else in South and East Asia (or Colombia, Spain, Poland, and Turkey), you need a safe way to invest your money. And, you need to be able to do the same sort of fundamental analysis that you do when investing in stocks in the USA. The route that many investors take is to purchase American Depositary Receipts. As Investopedia explains.
An American depositary receipt (ADR) is a negotiable certificate issued by a U.S. depository bank representing a specified number of shares or as little as one share investment in a foreign company’s stock. The ADR trades on markets in the U.S. as any stock would trade.
ADRs represent a feasible, liquid way for U.S. investors to purchase stock in companies abroad. Foreign firms also benefit from ADRs, as they make it easier to attract American investors and capital without the hassle and expense of listing themselves on U.S. stock exchanges. The certificates also provide access to foreign listed companies that would not be open to U.S. investment otherwise.
The best route is to only purchase level three ADRs. They are subject to full SEC reporting requirements so that you can just as easily analyze them as you would a US stock.
As an example, follow this link to see Indonesian ADRs. It is of note that only one ADR of an Indonesian company trades on the NYSE. As a fixed line Telecom Company this is not an internationally famous company but it is one that will grow as the Indonesian economy expands. You can also check out ADRs for any of the other nations with higher projected growth rates in you are wondering where to invest outside of the USA.