Why US Investors should Internationalise

In Jul’17, the Federal Open Market Committee (FOMC) declared it would begin shrinking its balance sheet “relatively soon” (link). What could have generated this confidence? It has been almost a decade since last recession and we might be closer to next one than the previous downturn (link). This is not scaremongering but such is the cyclic nature of economy, not to be mistaken with anything else. While the jury is still out on the Fed’s handling of the last crisis, one thing is sure that without adequate handling of Fed (read QE) the dip could have been sharper and more painful. At the same time, many would argue that what could have been one sharp dip and subsequent sharp recovery has been flattened by the Fed’s action. The decade of no green shoot is probably an example of this. And if another downturn hits, the Fed may be without many tools with such low interest and plenty of liquidity provided already (link).

Meanwhile, US investors find themselves with not many options. Last year, US Industries actually cut down on Capex (link), they are hoarding Cash (link) and worse still, much of this is being done out of US (link). It was probably no surprise that in absence of visible demand on investors’ money from the formal sectors, a number of startups could be funded. But has that fared well for investors? A prominent example is Uber, which definitely is hugely promising but has yet to show any profit, is rather making huge losses (link). This should bother its investors.

Does this mean, really there are little avenues of investments? Far from it, investors should notice what is happening in the world outside US. In the emerging markets, household incomes are still rising and not all of them are exporting countries to US (so as to blame them for our misery).  India is still a net consumer society (link) and has been consistently growing at the decent rate of around 7% since last 5 years (link).  Not just emerging markets, even the developed countries have the large variances in how their markets performed. Here is one good summary on market performance within developed countries from 1997-2011 (Source).

And, did someone tell you that Australia never had any recession in last 25 years (link)?

And let’s not get into currency performances where Euro is continuously rising compared to US Dollars since beginning of the year 2017 (Source).

So, while it’s anybody’s guess how the future will pan out, US investors should have decent diversification to international markets instead of vacillating along with Fed’s words, from ‘Optimism Waned’ (link) to ‘modest’, ‘moderate’ etc. (link)