Should I invest more in stocks of non-US companies?
Does it make sense to increase exposure to the stocks of foreign companies relative to US companies? Many US investors are wondering if our current economic policies will prevent US-based companies from continuing to be among the world’s highest-performing and what this might mean for overall US stock market returns.
“48% of the revenue being generated by S&P 500 companies already comes from their overseas sales,” was part of the response given by economist Brian Wesbury in this clip from Foster Group’s WiseWealth 2009 Fall Lecture Series event. His answer implies that even investors who hold only shares in domestic companies already participate in the global economy. However, Wesbury goes on to say that if the regulatory and tax environment in the US becomes less favorable relative to other countries, investors may be rewarded in the medium- and long-term by increasing their allocation to foreign stocks.
To watch Brian’s entire presentation, including the audience Q&A, click here: (Presentation - 43 minutes; Q&A – 22 minutes
1) If amount of sales in other countries (B, C,D)argues for investment in a company from country A, we should be investing heavily in China, Japan, etc., whose companies have enormous sales in the U.S. 2) Many of the U.S. companies who have large sales in other countries (as well as in our own) have also moved large portions of, even most of, their production to those countries as well, which reduces U.S. employment and in turn reduces the U.S. economy by lowering buying power; the unemployed don't buy as much as the employed.
David, Thanks for you comments on the recent Wesbury video clip. We recognize that there is always more than one way to interpret economic data or ideas and you have noted a couple. In response to number 1, of course there are multiple reasons to invest globally and domestically, including diversification. The idea that an investor would want to increase exposure to the US economy by concentrating not only in US companies but also in those countries who rely on exporting to the US would seem counterproductive to the general idea of global diversification. Point 2 is really tough because it gets to the issue of how people view "free trade". If companies are moving operations overseas it is likely for profit motivated reasons which may include lower costs of labor, lower taxes or less onerous regulation. The question is whether there should be any protections in place to shield US workers and consumers from the global marketplace, particularly where there may be less than level playing fields due to protectionism and other practices in these other countries. There's no end to that discussion from what I can tell. Anyway, thanks for responding. It's good to know that someone is reading and thinking about the issues that we are bringing to the Foster Group blog! Cheers! Kent