In the years I’ve been investing, I’ve encountered a lot of people looking for the next big thing and keen to stash their money in faraway lands and trust it to foreign stockmarkets, rather than sticking with the good old FTSE 100.
With the FTSE in one of its worst periods of stagnation for some years, and still below 2007’s pre-banking-crash peak, I can see the attraction — and I’ve even done it myself in my younger days, doing not very well at all investing in emerging market funds and the like. But I reckon it’s almost always a bad idea to invest in markets outside of the UK, with the exception of America’s NYSE and NASDAQ.
China my China
China was the latest darling, and sure enough the Shanghai Composite index more than doubled from a year ago to June’s peak. But it was a manipulated boom, with Chinese state organisations obliged to buy shares and the government talking it up at every opportunity. And trusting Chinese private investors, sadly, piled in without really understanding valuations, often with seriously high gearing.
The crash since then has wiped 40% off the index’s value, all apparently due to foreign forces intentionally unsettling the market if you believe the Chinese authorities, and not down to the bumbling incompetents who thought they could buck the market.
No, if you’re going to invest in a stock market, it really needs to be a free-market one. And for me, the Chinese tale also rules out all the other emerging markets in the world — few are as openly political as China’s, but oversight and regulation is usually woeful at best (and corrupt at worst) compared to the developed markets of the world.
Eurotrash
What about the bourses of the eurozone? Well, the big problem with those (and I’ve already provided the clue) is that they’re in the eurozone. By its very nature, its business environment cannot match the free market ones of the world. The eurozone is run for political ends and not economic ends, and its economic levers cannot possibly be adjusted correctly for business across the zone.
I still reckon it’s doomed in the long run, but while the eurozone lives, it’s fated to underperform the world’s free markets.
Other than an important exception, the UK and US markets are the freest and best regulated in the world, and they’re home to the only indexes I’d ever directly invest on today — the FTSE, the NYSE and the NASDAQ. The exception? That’s AIM, whose history is a litany of failing to enforce even its own woefully inadequate regulation and allowing fraudulent companies to rip off investors for years — and the LSE’s courting of Chinese companies and trying to get them to list on AIM is shameful.
Home sweet home
If you want serious overseas exposure (and you really know what you’re doing), there are surely enough Investment Trusts and ETFs listed on the FTSE to cover most requirements, though most emerging situations would still be in bargepole territory for me. Other than that, the companies listed on the FTSE 100 provide all the foreign risk a long-term Fool would ever want, don’t they?