Go Global!

It’s trite, but true: the world is getting smaller. The Internet, cell phones and air travel have made us more connected than ever before, intertwining our economies. Many commentators have gone one step further, saying that the benefits of international diversification of equity portfolios have declined as a result of globalization because stock markets are now so correlated.

While it is said that statistics can be used to prove almost anything, one country stands out as being highly uncorrelated to the rest of the world, no matter how you look at it: Japan. The 1990’s were a decade of economic growth and bull markets for most of the developed world. In contrast, economic policy mistakes and a bear market hindered Japan. It is amazing to consider that the world’s second largest stock market is currently sitting at a 17 year low! Intuitively, it seems likely to be attractive, after all, a reformer Prime Minister is finally in place. Unfortunately, Japan’s growth will be adversely affected in 2001 and 2002 by the worsened global growth, poor domestic sentiment and tightened fiscal policy with Koizumi’s willingness to proceed with fiscal reform. However, there is tremendous potential in Japan and it is a place to watch.

The bottom line is that there is always something unique and different going on somewhere in the world. While the US has been and continues to be the leader globally, we believe that it still pays to take a global view.