As the US stock market cools off, many investors may be looking outside of America for investment opportunities. When doing so, it is a good idea to consider which offshore investments hold promise and which offshore investments are risky. Last year we asked, why aren’t you investing offshore?
The best deals in stocks today are not in the USA but in foreign markets. Why aren’t you investing offshore?
The United Nations World Investment Report for 2016 shows which countries investment money is flowing into and in what amounts. In 2015 money flowing into Asia and Europe each exceeded that flowing into North America.
In the years immediately after the 2008 market crash and onset of the Great Recession foreign direct investment came into the USA.
The largest gain in foreign direct investment on our chart is in the USA followed closely by Japan (113 billion to 100 billion. As a percentage increase Japan out performs everyone with an increase of more than 400%. Other significant performers are South Korea with a more than 200% increase in foreign direct investment and Hong Kong with a twenty-five percent increase. It is significant that the BRICS nations which were thought to be ready to move up economically lost as a group.
Smart money follows opportunity and flees from excessive risk. Which gets back to our initial question, which offshore investments are risky today?
Which Offshore Investments Are Risky: A list of countries to avoid
Market Watch looks at the issue of which offshore investments are risky and lists 7 market traps to avoid.
The countries where they see excessive investment risk are these.
- South Africa
Here are snapshots of what they say about each offshore “investment trap” on their list.
Argentina has been on the blacklist for some investors for a while, given its history of sovereign debt problems. And it’s looking grim on that front once again.
The current challenges, including debt tensions and rising inflation, are quite
Argentina has been an economic basket case for years. The country will need to carry out serious and permanent economic reforms to make it a non-risky place to put your money.
Brazil was a bright shining star of the BRICS nations. Then China cut back of commodity imports and Brazil tanked.
Corruption, labor problems, and inflation are all issues that make investment in Brazil risky.
ETF’s that track the Chinese markets are all off this year.
The common claim is that it’s simply the fallout of trade-war posturing. But remember, there have long been structural challenges to China investments that include massive debts in both the private and public sector. In fact, a leaked report from a government-backed think tank warned of a “financial panic” that could be caused by cascading defaults and a liquidity crisis.
We have been concerned about Chinese capital flight for a couple of years. And perhaps the most dangerous issue for China is its huge debt burden. China needs to do what Taiwan, Japan, and South Korea did years ago. They need to transition from an economy heavily managed the state to one driven by the market. These are the issues that make offshore investments risky in China.
While the Philippines has been one of the fastest-growing economies in Asia, with annual GDP growth rates just shy of 7% for the last few years, it now faces the very real challenge of runaway inflation thanks to that brisk growth rate.
Then add in the uncertainties caused by the country’s dictatorial president and you have good reasons to avoid investments in the Philippines.
Poland is considered a bright spot among the nations formerly in the Communist Block. But there are problems.
Unfortunately, Poland’s growth has been built largely on consumption fueled by government entitlements, which is something many investors think is unsustainable despite the impressive headline numbers.
If you have made money in an ETF tied to this economy it may be time to take little of that profit off the table.
What was once Africa’s strongest economy has, like Brazil, seen the effects of lower commodity sales.
As growth and optimism has evaporated, so has lending. And worse, at the end of 2017 S&P downgraded South Africa’s debt to junk status as the economic outlook appeared increasingly grim.
South Africa is another risky country for offshore investments.
ETFs that track investments in Turkey are down 30% this year. The county just re-elected a dictatorial president who due a constitutional change will have more power than ever. Inflation is on the rise and interest rates are up. This is an unstable situation and a risky country for investment.