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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (20542)	7/29/2007 5:12:47 AM
From: elmatador	Respond to of 219562

US markets should look abroad for help As a new convert to Facebook, I have spent some time (editors, look away now) playing around with it. On a recent trawl through the social networking site, I found a game that might be of help to investors sifting through the wreckage of this week's market slump. It is called "The Traveler IQ Challenge" and requires players to locate ever more exotic places on a world map. This addictive pursuit may offer investors both solace and lucrative ideas On a recent trawl through the social networking site, I found a game that might be of help to investors sifting through the wreckage of this week's market slump. It is called "The Traveler IQ Challenge" and requires players to locate ever more exotic places on a world map. This addictive pursuit may offer investors both solace and lucrative ideas. With the Dow coming off its worst three-day fall in five years and the S&P 500 having shed 4 per cent in a week, a virtual trip to the likes of the Whitsunday islands and São Tomé and Principe is clearly nerve-soothing. But a knowledge of global geography could also come in handy to those looking to profit from the market's predicament. The best (last?) chance for US investors seeking a way out of the current malaise may be to back companies with a global footprint. It stands to reason: if US economic growth fails to keep pace with the rest of the world, overseas demand for US companies' goods and services will outgrow domestic orders. A feeble dollar, currently hovering around multi-year lows against the currencies of many of America's big trading partners, is also helping exporters. And there is a third, more subtle, factor that could turn multinationals into safe investment havens. Consider this: the primary cause for the current turmoil has not been equity-specific, but the reversal in the over-easy credit conditions enjoyed by companies, private equity groups and hedge funds. Let's remember that US stocks were still rising earlier this week even as a slew of debt offerings were being pulled. After Thursday's rout, which saw both the Dow and the S&P 500 lose more than 2 per cent, stocks feel less "decoupled" from bonds. But there remains a crucial difference between the two asset classes: equities are more "globalised" than debt. That is because the breadth of operations of US companies, especially large ones, lends them greater exposure to foreign economies. Debt markets, by contrast, take their cue from individual, more localised deals, particularly in troubled times. For proof of my "foreign is beautiful" theory, look no further than this week's corporate earnings. As more and more US companies released second quarter results, the story became a familiar one: domestic weakness offset by international strength. Leading names such as UPS, Pepsico and United Airlines went to join blue-chips such as General Electric and IBM in the roster of companies that benefited from their cosmopolitan nature. This phenomenon is not a one-off blip. According to Joe Quinlan at Bank of America, this will be the twentieth consecutive quarter in which foreign earnings of US groups have grown at a double-digit clip. The streak had until recently been overshadowed by the stellar performance of US operations. But given the domestic economic doldrums, corporate America's foreign outposts are now the crucial swing factor to stave off a US "earnings recession" in 2007. My "Go Out" investment strategy would, of course, be threatened by a rise in the dollar. Or a slowdown in Europe, which despite all the giddy talk of "Chindia", is the source of half of US companies' foreign income. Neither looks likely in the near-term. A more persuasive counter-factor is that shares of large US multinationals have had a good run this year. Before this week's debacle, shares in S&P 500 companies with more than half of their revenues overseas had risen nearly 20 per cent, more than double their stay-at-home rivals, according to Bespoke Investment Group. But in the current market, investors must be prepared to pay up for safer, higher quality earnings streams. The good news is that companies with the required global attributes can be found in sectors ranging from technology to industrials (just avoid telecoms, healthcare and most small caps), so that fund managers can decide how to play the international game. Talking of which, I am off to improve my "Traveler IQ". Nervous investors should do the same. Looking at a map of the world might well yield a solution to domestic strife. Copyright The Financial Times Ltd. All rights reserved