While the U.S. is by far the 800 pound gorilla in terms of the size of its economy and its market capitalization, many countries are experiencing growth that far exceeds the U.S. China now ranks second in terms of market capitalization, followed by Japan, Britain, France, India, Russia and Brazil. Increases in stock market capitalization of these countries reflect higher rates of economic growth that has occurred over the past ten years.
Economic growth in the BRIC countries (Brazil, Russia, India and China) are far above other developed countries. From 2004 – 2008, real growth of GDP averaged 3.5% in Brazil, 7% in Russia, 8.9% in India and a whopping 10.8% in China. Contrast that with the growth in the U.S., which scored a meager 1.8% during the same period. Although the investment in these emerging markets carries more risk than investing in U.S. securities, their potential for increasing returns in your portfolio can not be ignored.
Capitalism has spread like wildfire from Japan, South Korea and Vietnam involved more than twenty years ago. China has come late to the party, but this is partly because of its size in terms of its population and the fact that its economy has historically been a significant land-based one. Move hundreds of millions of dollars in urban cities during the night was logistically impossible. But China has done so consistently since the early 1990s and continues to move millions more each year in these urban capitalist enclaves that have been responsible for China's spectacular growth in manufacturing and exports.
How to invest in international companies?
International investing allows you to buy stocks of some of the largest and fastest growing companies in the world. These investments have value only if the investor has a horizon of long-term investment of time and is willing to take risks. There are many ways to invest internationally. There are international mutual funds that include numerous blue chip international companies. There are also mutual funds, which try to replicate the performance achieved by a market index like the S & P 500 in the U.S. or the international MSCI EAFE index. There are exchange traded funds (ETF), which offer an alternative to mutual funds. ETFs trade on an exchange, traditional stocks, but in fact represent a number of shares in companies tracking a particular index. The advantage of ETFs over index mutual funds is their low cost and fees as well as the ease with which an investor can buy and sell at any time during the day, unlike mutual funds that is cleared once day.
