The topic of home bias was raised the other day by reader Macro Man who left a comment about equity portfolio home (country) bias and a link that included this table on page 32. I don't actually know who authored the report but you can click here to take a look.Coincidently I received an email from a portfolio manager in Australia who sent me one of his firm's marketing pieces. I did not seek out permission to specifically spell out what they are doing but he is welcome to leave any information he would like in the comments.
His "balanced" portfolio has quite a few different assets classes including what looks like 62% in equities. Of that 62% roughly 60%, or 37% of the entire account, is domestic (so for his clients that is 60% in Australian) and 40% in foreign. Of the foreign I wonder how much is in the US?
The data on the table, albeit dated, don't seem much different than the US with a couple of exceptions like Netherlands or Austria and I don't know how Ireland came up with 118%.
I have been consistent in maintaining client exposure to foreign in the mid thirties, I have tweaked a little bit now and then but have not made a major change. I have said before and still believe that over the next few years I could see moving closer to 50%.
Michael Metz made an interesting comment that is relevant here. He said the biggest thing this century will be the transference of wealth to some of the larger emerging markets, I am paraphrasing.
I buy into this. The way I think of it is that quite a few countries will come to player bigger roles in the world's economy than they do now. I've written about a few of these countries in the past and I plan to continue to study more of them in the future I would suggest you do the same.
8 comments:
Do you have a favorite region for the next 5-10 years or is that a bad question?
your question makes for a good follow up post, hopefully today but I have to go to PHX so not sure if today or not.
What about Eastern Europe. A good education system, a much more developed debt system and future enrollment into the Euro.
As in every era, there is a transfer of wealth. Perhaps the most immediate transfer of wealth will be within the United States as higher taxes and an attitude of class envy permeates the political and social landscape. With this scenario, it is possible that Ayn Rand's ATLAS SCHRUGGED theme becomes a reality as the middle class, oppressed by high taxes, chaotic schools and politically correct dogma, quits producing.
Nations that stand to increase wealth will be located in Asia, where a high level of education, discipline, strong work ethic and a large middle class with disposable income (by their standards) prevails.
Africa and South America will remain loosers in the economic game for obvious reasons. Eastern Europe, with excellent potential, will find itself again a victim of Western Europe and an expanding new (Soviet) Russia. With an non-sustainable welfare state, ethnic conflict and low birthrate, Western Europe will suck resources from her Eastern European neighbors. Russia, mired in corruption, a low birthrate and Islamic incursions on the southern borders, pours all available resources into the armed forces to project strength.
Not to be ignored is the increase of wealth by military conquest. The United Nation's resolutions will not prevent China from absorbing Taiwan and perhaps the Korean peninsula as the United States becomes increasingly isolationist.
India and Pakistan will have a simmering conflict resolved by force, with India the victor. The Muslim Middle East will be a scene of conflict and aggression, with another holocaust on the horizon.
And our southern borders will remain open with a growing militant Latino effort to de-couple one or more border states into a separate identity. Diplomacy will fall flat after nations taste military victories.
What am I going to do? The usual. Invest aggressively anywhere in the world and hope that the above scenario does not occur.
I'm not sure why anyone would think that folks coming “up here” from south of the border would then turn around and want to re-annex part of "us" to their old country. Seems like they left there, right? Most of the Latino kids I know what to be more American. No evidence to support that.
I'm not sure that Taiwan would go so easily either. I mean look at our troubles in Iraq ex poste Bush's houtie toutie “we're not peace keepers.” rubish in the debates with Gore. It’s hard to conquer and pacify a country.
Since Thatcher gave Hong Kong back to China, Clinton ran the Seventh fleet up the Taiwan Straights when the Chinese shot rockets toward Taipei. Now the Chinese have all that Formosa-based capital invested there. The Chinese saber rattling is mostly nationalist PR to feed to angry masses, to justify their dictatorship, get military funding etc… (similar to Bush’s jingoistic “If you don’t support me, you don’t support the troops”.. and Lockheed stock goes up!) which fewer and fewer Americans fall for every day.
Wealth can “transfer” but wealth is not always fungible, others can get wealthy while we do. This is something that America-firsters seem to forget. Korea got real wealthy while we did too. They weren’t able to annex anybody and we didn’t get less wealthy, data point. Wealth isn’t a zero sum game.
We've lost a lot of "wealth" trying to make Iraq into a safe place for XOM to invest. Add that cost to every gallon you pump into that sipper you're driving. (And it's off budget! LOL, today's WSJ opinion page did another howler about how "the deficit is coming down..." sure if Iraq, Afganistan, New Orleans are all 'off-budget')
I agree that Bush and the GOP Congress set a bad precedent with their mathematically impossible Medicare drug benefit, but most nations: China, India, and all the ones mentioned above have nationalized health care. Why will it drag us down but hasn’t dragged them down. Our health care system is half nationalized already, literally.
Let people pool into private groups and negotiate with big health care providers ala Hillarycare (a free market solution that the big health care providers didn’t want.) Either way, another data point, health care won’t bring us down.
And speaking of China, they have 40% marginal tax rates and 10% growth. Why don’t we every see that on the Kudlow show?
I realize talking about health care is getting off-topic but I just wanted to respond about nationalized health care. One reason you can't compare the US with socialized systems is the much higher salaries paid in the US. As a radiation physicist I had considered working in Canada and New Zealand until I saw their salaries paid less than half of what I would get here. Even with free health care it wouldn't be worth it (speaking as a healthy person). So what I'm saying is to nationalize US health care would cost much much more than in other countries unless you had everyone take large pay cuts, and if that happened you'd have a mass exodus of health care workers. It is silly to compare China's or India's quality of health care to ours. Try to get radiation therapy in India (as a regular joe)and you'll understand why.
Venndata should re-read my comments, especially regarding Latinos in the US and do a quick review of both diplomatic and military history. Then again, I recommend those disciplines to many of my liberal friends. No offense.
A liberal would never say "Wealth isn’t a zero sum game."
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