Is it time for investors to look towards the U.S.?

October 12, 2009

Kully Samra-Kully Samra is branch director at Charles Schwab, UK. The opinions expressed are his own.-

The economic crisis that has prevailed over the global markets in the last 12 months has undoubtedly rattled investors worldwide, but rather than leaving their heads in the sand, seasoned investors have continued to search for opportunities amidst the instability.

One such opportunity that seems to have been overlooked by UK investors is that of overseas share ownership.

Whilst I have no doubt that there are viable investment opportunities in other markets, I do believe that the U.S. market provides a whole wealth of opportunities for the UK investor, especially those looking to diversify their portfolios. 

Whilst this belief stems from our experience of the U.S. markets it was recently supported by the findings of our latest survey which looked at the investing habits of active UK retail investors; specifically in relation to their views on overseas investments.

Our independent survey of more than 1400 British-based active retail investors found that 44 percent believed that the U.S. economy and financial markets would recover sooner than those of the UK, with only 28 percent believing that the UK will recover ahead of the U.S. 

We also found that investors expect the U.S. to lead recovery more generally, with 39 percent of respondents believing the U.S. will take more than 12 months to come out of recession, compared to 50 percent for the UK.

We agree with this assessment of recovery and believe that with the Dow and S&P posting their best quarterly results in Q3 since 1998, the U.S. economy is showing some signs of improvement and recovery is starting to get underway.  We are not however unrealistic and expect a few bumps along the way. 

It would not be surprising to see occasional selling surges in the market, though we believe that the dips are likely entice investors who are still on the sidelines back into the market.  This should help to keep any pullback relatively limited.  We also believe that the third quarter will post positive GDP growth that will continue into the fourth quarter.  With growth returning both in the U.S. and around the world, we remain optimistic on the near-term future of the market.

The Land of (Missed) Opportunity

Despite this positive assessment of the opportunities that the U.S. market holds for investors, the sentiment of missed opportunity that I discussed previously is echoed in our survey.  Only 17 percent of respondents who believed that the U.S. would be the first to recover actually invest in U.S. stocks. 

This naturally poses the question of why this is.  Our research shows that the main reason investors do not automatically turn towards the U.S. market, despite their belief in a quicker recovery than the UK, is not because UK investors prefer to invest in British companies (only 15 percent of respondents stated this reason) or because they perceive any barriers to entry (a small 2 percent of respondents cited this factor), but because they do not feel they know enough about the U.S. market (41 percent).

In terms of investment behaviour, the U.S. stock market is largely unexplored and under penetrated by UK investors, especially given our survey participants’ expectations of a speedier recovery in the U.S.  In addition, Dollar weakness should make U.S. companies relatively more attractive to foreign purchases.

Amidst the turmoil prevalent in the global financial markets in the last 12 months, a diversified portfolio is ever-more crucial, and the U.S. is one area where investors could definitely benefit from increasing their exposure.

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