Going Global: International Investing Dissected at TIGER 21 Meeting
New York (October 19, 2006) – Clark Winter has been racking up the frequent flier miles. Through August of this year he had made the nearly 7,000 mile trip from New York to China five times.
As Chief Global Investment Strategist for Citigroup Global Wealth Management, Mr. Winter travels frequently to speak with economic ministers of various countries and to research emerging markets for investment opportunities. His presence in China can clearly be read as a sign that the country remains one of the top spots for overseas investing.
At a recent presentation to high net worth investment group TIGER 21 on the drivers of global investing, Mr. Winter discussed China as well as other markets where he saw opportunity, including parts of the EU, India and Latin America.
According to recent market research, following some $15 trillion invested in North America, over the next four years the most private money will flow to the Asian Pacific ($11 trillion), Europe ($11 trillion) and Latin America ($6 trillion), not accounting for offshore transactions. But how are these decisions made and what makes these markets attractive for investment is where investors need to focus. “We need to understand the drivers of the economy, rather than just crunching numbers and analyzing statistics,” explains Mr. Winter.
Global Investing has been on top of mind for TIGER 21 members, many of whom have soured of late on the prospects for significant returns domestically. In fact a survey of TIGER 21 in December 2005, showed that members had nearly 7.5% of their assets allocated to non-US investments and members expected this allocation to increase moving forward.
“As our asset allocation survey showed, TIGER 21 members have made major investments in foreign markets and their appetite for new opportunities is growing,” said Tommy Gallagher, president of TIGER 21. “We are always looking to expand our understanding of the markets and the international sector has continually evolved causing us to be ever more vigilant.”
When trying to get an upper hand investors in foreign markets would often take their cue from U.S. monetary policy, which has traditionally held great influence on overseas markets. But as we have witnessed with China, other countries are beginning to exert their own influence and new factors are driving where capital flows. Investors looking for opportunities should consider demographics including countries that have strong education systems to train workers, positive migration, and population growth. Mr. Winter points to Ireland as a prime example of a country benefiting from its ability to develop and retain a highly skilled workforce. India could be poised to become the next Ireland as long as it continues on its current path.
Mr. Winter cited Dubai as an example of similar success in the Middle East. While it has no oil reserves, Dubai has been able to create a financial infrastructure that has helped it quickly become a hotbed of investment activity. Smart investors will try to identify countries that foster internal improvements through infrastructure and regulation and seek investments there.
Mr. Winter also pointed out several countries that have caught on to the politics of reform, including Mexico, Egypt and Turkey. He explained how these countries have taken legislative action to encourage economic growth and a more secure investing environment. Opportunities in these countries also deserve a close look.
However, one need not look overseas to find examples where infrastructure for growth was put in place where it did not previously exist. Silicon Valley continues as a breeding ground for technology companies through its ability to attract highly skilled workers. Menlo Park and the Stanford University area are also good US-based examples.
But for those looking at international markets in order to diversify their holdings, investing in foreign markets does require a certain level of sophistication and thorough research, something that leaves many investors including some TIGER 21 members feeling uncomfortable. Mr. Winter is quick to point out that investors who might shy away from foreign markets where corporate governance controls are not in place, do not have to be left out. He suggests that investing in a multinational company might satisfy the need to diversify into other markets.
Whether one makes investments directly in companies based in emerging markets or US-based companies with business overseas, it is important for investors not to get caught trying to be a market driver. “Investors are really astute passengers, rarely are they drivers,” notes Mr. Winter.
Some of the others issues that have the potential to drive investment activity include energy, not only supply and demand, but how to clean it; and what Mr. Winter refers to as the “Visible and Incomprehensible” – meaning issues that can have an obvious impact on economies, such as global warming, debt repayment, health care, and pension reform. By anticipating the impact of these issues, investors can potentially position themselves for handsome returns.
In a final note on China, Mr. Winter questioned what will happen when China decides to use its own foreign-exchange reserves to finance its own (domestic) consumers rather than the US consumer. The answer is just beginning to be scripted in Asia.
With the amount of travel done by the likes of Mr. Winter, maybe airline stocks are not looking so bad after all.