The United States represents about 25% of the world’s economy. This means that 75% of business is conducted outside of the US by non-American companies. Investors who participate only in American stock exchanges are limiting themselves as they will be missing the opportunity to profit from foreign companies. With the fast-growing economies in India, Eastern Europe, Africa and South American, there are many foreign investments that may create a lot of wealth for early investors. However, investments in foreign countries can also present a lot of risk to investors. Investors interested in foreign markets should understand the ways to reduce their risk.
Markets do not like uncertainty, whether the market is in New York or Budapest. Governments that are unstable, particularly in financial terms, are a threat to the business growth in that country. An investor needs to monitor a company to determine stock value and monitor the overall situation in that country’s capital. A country that is unstable due to finances, elections or other disruptions may create a situation where an investor needs to sell a holding even if the underlying company still looks strong.
For various reasons, governments take actions that result in higher or lower currency values. In the United States, the Fed has acted in recent years to provide loans at low interest rates to put money into the economy. As governments increase and decrease spending, there can be significant changes to that country’s economy. Investors should monitor the economic policies in a country as one part of their buying and selling decision making process.
Open War And Trade War
War is a present danger in many countries with growing economies, such as India and Israel. As investors need to monitor the government and economy of a specific country, they also need to monitor the geopolitical risks that the country may be facing. Trade wars are another concern for investors. A trade war occurs when two or more countries place tariffs on goods from another country to punish them for various offences. A trade war can both create problems and create opportunities for investors, but investors need to closely watch the news regarding trade battles and be ready to adjust an investment strategy as needed.
Modern, developed countries have strong financial systems that allow investors to buy and sell stocks and other investments quickly. When potential problems are present, an investor should monitor the situation and not simply act based on fear. Short term problems may even present buying opportunities. Unless problems are truly immediate, such as the eruption of war, investors will have time to study the facts and carefully choose what action to take to protect their money.
Davenport Laroche is a shipping container investment agency.