Saturday, December 31, 2005


Sectorz : Foreign Stock Bust ?

"Coming after earlier stock losses, house depreciation will leave consumers with no piggy bank with which to support their consumption habits. Their 25-year borrowing-and-spending binge will be replaced by a saving spree. The big losers will be foreign lands that depend on American consumers to buy their surplus goods and services.

This scenario is beginning to unfold just as U.S. investors are stampeding to foreign stock markets, chasing the rallies that overseas bourses have lately been relishing. Some U.S. advisers are recommending a 33% allocation to foreign stocks, up from 20% two months ago. At current rates U.S. investors in 2005 will put $100 billion into mutual funds offering foreign stocks. Such a sum is equal to the flow into U.S.-only funds, which last year got twice what international funds did.

But investors are probably catching foreign stock cabooses, not locomotives. The dollar, which I think will keep climbing (with help from Fed rate increases), is eroding overseas stock gains. When U.S. consumer-spending weakness is felt globally, export earnings and economic activity abroad will nosedive and murder foreign stocks. Best advice: Unload your foreign equities now on all those bullish latecomers. Start first with the export-led Asia tigers, especially China. They'll suffer the most. "

Gary Shilling in Forbes, December 26, 2005

2005 saw heavy inflows into foreign stock funds. Is this trend going to continue through all of 2006 ?

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