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Clear Thoughts
Over There!
| Global opportunities brings new sets of risks and opportunities. |
The U.S. has been racking up its trade deficit for several years. The current administration has not appeared to be terribly concerned with our trade imbalance and economists have taken both sides of this issue, each in turn promoting either doom or sunny days. Just yesterday a report was released that may calm some critics, as our trade deficit fell to $65.7 billion, a 4.2% decline from the record set in January of $68.6 billion. Imports for February were $178.7 billion. This is still the second highest level ever recorded, despite the press and the government promoting the decline.
Given the challenges facing the U.S. in international trade, the big question is if it is at all Un-American to invest in non-U.S. stocks. Our quick answer is no. In fact we believe it is in the best interests of both this country and your portfolio to do so.
The unprecedented prosperity of the U.S. has been exported. Our way of doing business, free trade and capitalism, has been adopted and honed, with certain local optimizations and modifications among various economies.
Some developing countries that were so far behind and were best known for their natural resources, and being customers of this country, have been able to leap frog above both Western Europe and the U.S. on many advances. Some of their advantage is from what was once a disadvantage; they had not yet built an infrastructure. By not relying on antiquated legacy technologies, maximizing the development of their natural resources through modern technology and utilizing less expensive labor pool, some developing nations have morphed into new manufacturing, technology and exporting giants.
China is constantly gaining headlines and garnering concern because of its rapid growth in technology, manufacturing and next generation infrastructure. Even though February posted our smallest trade gap since 3/05 with China, it was still $13.8 billion. There are 400 million cell phone users in China, with over 6.1 million mobile users connecting online. Overall Chinese Internet users in January ranged between 150 to 200 million compared to the U.S. which had 154 million users. One of the most valued metrics of the Web is time spent online. Chinese users average 15.9 hours per week, while Yahoo! the most popular Internet site in the U.S., averages one hour per week. That is 1.765 billion hours per week online in China. Also, China has a lot more room to grow than the U.S. While roughly half of the U.S. population is actively using the Internet, just 11.7% of the Chinese population is currently plugged in.
There are many more countries to be discussed and examined to decide where and how to profit in our global economy. As a U.S. citizen, I embrace our economic ties. Since the beginning of history, trade, among other aligned motives, has caused peace among nations and people, frequently leading to more prosperity for all involved. The more real estate, companies and goods we own and trade with other countries, the blurrier the lines will become between us. This will cause us, perhaps without even realizing it, to see the world from new and enhanced perspectives.
Some of these foreign economies, and more importantly specific foreign companies, are growing faster than many U.S. firms. Many companies are already publicly traded and soon to be discovered by the global equity markets.
How does an investor go about making an investment in Asia, South America, the Euro-zone or even Canada? How can one make such an investment with a sense of confidence?
As quantitative investment managers, we always look to the data. The best way for us to properly analyze these gems of the future is to find reputable and consistent data. Our approach is buying the stocks through ADRs (American Depository Receipts). ADRs are certificates issued by banks which represent specific foreign stocks. Americans have traded ADRs since the late 1920s. Companies with ADRs trading on exchanges in the U.S. have met at least the minimum financial reporting requirements of the SEC.
We already include non-U.S. companies in the universe of stocks that our algorithms survey by using ADRs and we will continue to do so. Demand is rising for investors to gain specific, focused exposure to non-U.S. equities, and since our clients have been asking for this type of product, we have listened. Clear Asset Management has developed a new portfolio focused specifically on investing in ADRs trading on U.S. exchanges, with an expected launch date of May 5. Details about this new portfolio will be forthcoming over the next few weeks; please stay tuned in for updates.
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