While U.S. markets have been staging a sleepy correction the rest of the world has been enjoying a quiet rally. Since the start of the second quarter the S&P500 (^GSPC) is roughly flat while the Nikkei 225 (^N225) has tacked on 4% and emerging markets, as measured by iShares MSCI Emerging Market ETF (EEM), have jumped 8%. The relative outperformance has some investors thinking it's time to take their investment dollars abroad.
Paul Hickey of Bespoke Investment Group has been playing a "buy America" theme for years and made Breakout viewers money doing it. In the attached clip he says the foreign rallies are being driven by low expectations. "Our longer term thesis is that the U.S. will outperform," Hickey says. "People were so negative on international markets that this strength we saw in August caught some people off guard."
Investors are to be forgiven for not expecting great things internationally. Despite the bounce, EEM is still down big year-to-date. The same is true for the Hang Seng (^HSI) in China and Europe's benchmark FTSE 100 (^FTSE), which has been dramatically lagging U.S. stocks over the last couple years.
Hickey thinks the strength overseas is justified given the local economies. Citing the Institute of Supply Management's survey of industrial business production Hickey says the vast majority of the world is snapping out of a period of severe torpor. Regardless of those signs of life, the major bottom for the dollar in 2008 is going to keep pushing U.S. markets ahead of the world.
For those looking to invest abroad Hickey suggests a decent hedge on the dollar bet in the form of American companies that benefit from international expansion. He likes Coca-Cola (KO) and industrial, energy and material cyclicals spiced up with some consumer discretionary plays as the world starts to spend again.