Birchtree
Well-known member
imported post
Another indicator that foreign markets may be poised to outperform their U.S. counterparts: global interest-rate movements. While the Federal Reserve raised rates another quarter point last week and indicated that it intends to keep raising them, in some major overseas markets - such as the United Kingdom - interest rates are holding steady and even falling. Rising rates tend to deflate stock-market performance. Investors who want to put more of their money into foreign stocks face several additional risks and expenses. For one thing. the fees on even the most straightforward investment - a mutual fund that invests in foreign markets - are considerably higher than for a domestic stock fund. Morningstar estimates that the average international mutual fund charges roughly an additional $19 annually in fees on a $10,000 investment.
In addition, there is the risk that currency swings will eat into profits. The vast majority of international funds don't hedge against exchange-rate swings. This year, for instance, the MSCI EAFE index has returned 14.6% in local-currency terms - but the U.S. dollar's rebound in 2005 has lopped off nearly 10 percentage points of that return when converted to dollars.
The last time foreign stocks took off like this, individual investors were largely stuck on the sidelines. Back then, investing abroad was largely the province of an elite circle of institutional investors in a position to deal with the complexities of buying and selling in foreign markets. This time around, individual investors have considerably more ways to join in. Today, for instance, there are more than 700 mutual funds dedicated to investing abroad, compared with just 55 in 1985, according to fund tracker Morningstar Inc. Investors have piled into these international funds even during times they have felt skittish about U.S. stocks. In each of the past six weeks, for instane, domestic-stock funds have suffered net outflows while foreign-stock funds have had inflows. In fact, AMG says that foreign stock funds have experienced outflows only one week this year.
The strong stock-market performance abroad reflects, among other things, an acceleration in corporate restructing in Europe and Japan. Tokyo's Nikkei Stock Average recently hit a four year high -a response to improving consumer demand, rising corporate spending and stronger earnings that attracted foreign investors. Across much of Europe, corporate cos-cutting and restructuring have enabled companies to increase profits, despite the considerable handicaps of weak domestic economies and a strong currency, which makes European exports less globally competitive. There definitely is a lot going on - the story in Europe and Japan is getting very compelling - stay tuned.
Another indicator that foreign markets may be poised to outperform their U.S. counterparts: global interest-rate movements. While the Federal Reserve raised rates another quarter point last week and indicated that it intends to keep raising them, in some major overseas markets - such as the United Kingdom - interest rates are holding steady and even falling. Rising rates tend to deflate stock-market performance. Investors who want to put more of their money into foreign stocks face several additional risks and expenses. For one thing. the fees on even the most straightforward investment - a mutual fund that invests in foreign markets - are considerably higher than for a domestic stock fund. Morningstar estimates that the average international mutual fund charges roughly an additional $19 annually in fees on a $10,000 investment.
In addition, there is the risk that currency swings will eat into profits. The vast majority of international funds don't hedge against exchange-rate swings. This year, for instance, the MSCI EAFE index has returned 14.6% in local-currency terms - but the U.S. dollar's rebound in 2005 has lopped off nearly 10 percentage points of that return when converted to dollars.
The last time foreign stocks took off like this, individual investors were largely stuck on the sidelines. Back then, investing abroad was largely the province of an elite circle of institutional investors in a position to deal with the complexities of buying and selling in foreign markets. This time around, individual investors have considerably more ways to join in. Today, for instance, there are more than 700 mutual funds dedicated to investing abroad, compared with just 55 in 1985, according to fund tracker Morningstar Inc. Investors have piled into these international funds even during times they have felt skittish about U.S. stocks. In each of the past six weeks, for instane, domestic-stock funds have suffered net outflows while foreign-stock funds have had inflows. In fact, AMG says that foreign stock funds have experienced outflows only one week this year.
The strong stock-market performance abroad reflects, among other things, an acceleration in corporate restructing in Europe and Japan. Tokyo's Nikkei Stock Average recently hit a four year high -a response to improving consumer demand, rising corporate spending and stronger earnings that attracted foreign investors. Across much of Europe, corporate cos-cutting and restructuring have enabled companies to increase profits, despite the considerable handicaps of weak domestic economies and a strong currency, which makes European exports less globally competitive. There definitely is a lot going on - the story in Europe and Japan is getting very compelling - stay tuned.
