The investment climate in America has gotten rather scary these days. While the Dow Jones is trading close to its all-time high, troubling trends have crept in during 2019.
US-China relations remain icy, and tariffs are still in place. The yield curve has inverted, signalling a possible recession. An alarming number of people, while employed, work low-paying part-time jobs. Even if America avoids a downturn, GDP growth will slow to 2.1% this year, before dipping to 1.9% in 2020 and 2021.
This isn’t a great prognosis for those looking to invest domestically. Fortunately, the world is a big place. While the economy at home slows, other nations keep charging ahead.
There’s no doubt about it: China and India are perennial investment darlings. However, you can find nations with 5-8% GDP growth throughout Africa, as well as South Asia and Southeast Asia. If you want to grow your portfolio, you’ll need to look abroad.
In this blog, we’ll make a case for going global at a time of uncertainty at home.
The American bull market has run its course
From the perspective of shareholders, the American economy is currently the envy of the world. Over the past nine years, the value of the Dow Jones has quadrupled. Unemployment is sitting at 3.6%, a 49-year low. Even now, things seem peachy keen – annualized growth for Q1 2019 came in at 3.1%.
Like in 2007, things seem fine. Like then, things can change drastically – often in a matter of months. Already, signs of impending trouble are mounting. In March 2019, the yield curve inverted for the first time since mid-2007.
What does that mean? Investors are rushing to lock in higher interest rates on long-term securities. An increase in demand for long-term securities increases prices, thereby reducing their yield. At some point, the return of long-term securities drops below that of short-term securities, therefore inverting the yield curve. In other words, it means investors expect interest rates to fall in response to an economy in recession.
Another foreboding sign – a slowdown in factory activity. To monitor the health of American industry, the Federal Reserve’s five regional banks conduct quarterly surveys. In December 2018, all of them showed a plunge in activity. According to comments included with completed surveys, it’s conceivable that Trump’s tariffs are behind the slowdown. This conclusion isn’t 100% clear – so far in 2019, these indices have recovered somewhat. However, persistent complaints about the price of steel and plastic are raising some serious questions.
Finally, the global economy as a whole appears to be slowing down. Buoyed by rapid expansion in emerging economies, growth in a healthy world economy is usually above 3%. However, the forecast for 2019 is exactly 3% – right on the line between a stable economy and a sluggish one. Confidence and hard data measures have plunged in emerging markets this year. Considering this fact, it’s increasingly likely the world economy might not hit this target.
Investing internationally has always been an aggressive growth strategy
If you’re seeking rapid growth, the milquetoast returns of the developed world won’t get it done. According to the International Monetary Fund (IMF), the G7 is only expected to grow by 1.6% in 2019. On top of this, the Dow Jones has been sputtering lately. It recovered from a 16% correction last year, but recently, has struggled to overcome resistance. It has bounced between 25,000 and 26,000 in the previous few months as trade talks have stalled.
If you want to catch a fish, you’ve got to go where the fishing is good. In 2019, that appears to be in ASEAN – according to the IMF, this bloc of Southeast Asian countries will grow 5.1%. Vietnam will lead the way at 6.7%, as US manufacturers seek suppliers unaffected by the trade war.
Yes, investing and growing your business internationally can be uncomfortable. You’ll need to comply with international laws, learn about local customs, and accept a higher degree of risk. However, the rewards can be enormous. According to Investopedia, the American Funds Emerging Markets Bond Fund posted a 10.32% ROI in 2017. Of course, emerging markets are inherently volatile, but that’s where the money is these days.
International cash transfer: not as scary as you think it is
Whether you’re investing in stock exchanges or expanding your e-store internationally, you’ll eventually need to move money across borders. However, inexperienced entrepreneurs often make the mistake of transferring money through banks.
Don’t waste thousands of dollars before you figure out how badly you’re getting hosed. Take a look at this quick example – let’s say you own an e-store that sells shoes in Australia. At the end of your first month of sales, you’ve amassed 10,000 AUD in revenues. You initiate a transfer via the Commonwealth Bank of Australia to your BoA business account. They offer an AUD/USD rate of 0.6566 – on the other end, this gives you 6,566 USD.
Not bad, eh? Before you get too excited, check out the interbank rate. Over on xe.com, they have AUD/USD at 0.6931. If you could change money at interbank rates, you’d get 6,931 USD instead. That’s a 5.2% spread – disgusting! Every month, you’re giving up almost 400 USD to the banks. As your revenues rise, this gap will only increase.
Repatriating profits from Australia to the USA doesn’t need to be such a one-sided transaction. The 2010s have seen an explosion of money transfer firms offering far better rates than the banks. Operating with a fraction of their overhead, they can charge FX rates close to interbank. Also, their fees are much lower, if not nonexistent.
Let’s use OFX as an example. If you were to use this Australia-based money transfer firm to move 10,000 AUD, you’d get a rate of 0.6903. With no fees, you’ll get 6,901 USD in your account – that’s 335 USD more than moving cash with Commonwealth.
Could cryptocurrency give a much-needed boost to the global economy?
As global growth slows, some suggest liberalizing the use of cryptocurrencies like Bitcoin could help turn things around. Their argument goes like this – by using crypto, you’re eliminating middlemen, namely banks and other currency exchange businesses. Money lost to these entities would be retained, allowing consumers to buy more goods and companies to invest in infrastructure. Also, some forecast the value of cryptocurrencies like BTC to soar as high as 100,000 USD in the near future. Should this prediction comes to pass, the material wealth of its holders will increase dramatically.
However, crypto’s volatility and the wild-west nature of its market will likely prevent its widespread implementation. Countless people got burned by the last crypto crash, which saw losses as high as 90%, peak-to-trough. And then there is the security issue. Just last month, hackers took crypto exchange Binance for 7,000 BTC (worth 41 million USD). While the financial integrity of exchanges has improved since Mt. Gox (they filed for bankruptcy the next month), the risks are still there.
Given these unresolved issues, it is unlikely crypto will save the global economy anytime soon.
The world is your oyster (if you want it)
We live in uncertain times. However, people have been saying that ever since the 21st century began. Tech has disrupted our institutions in ways we are only beginning to understand.
However, they have also provided us with the means to secure our future. Thanks to the internet, you can assemble a business from remote employees, suppliers, and vendors from across the globe. You can sell goods where the economy is hot. And thanks to innovative fintech startups, you can keep more of the money that’s rightfully yours.
The future is in your hands. Now, go get it.