International investing

[Ron Scott]

I do not believe we can predict big trends in the future based on past performance. This goes for using historical equities data to estimate returns during a retirement period as well as international/geopolitical allegiances and collisions during that same period.

But when we consider investing we have to do SOMETHING. I’m retired now and am close to 60/40.

I suspect (I don’t know, obviously) that we are witnessing the slowing or even a breakdown in globalization, and with it some key rationalization for increasing our exposure to international equities.

I’ve never been a fan of China’s political/business approach (tried to do business there…gave up) and am quite concerned with their Russia/Ukraine posture. It seems possible we’ll see some splintering of countries along regional or ideological lines that impacts world economies significantly.

I haven’t done anything yet but am contemplating pulling out of investments that include China and other countries than lean in the China/Russia direction. FWIW, VTIAX is about 8.5% China.

Have you been thinking about this? Thoughts?

[maizefolk]

I think you could be right. You could also be wrong. My biggest holding with a position in China is VXUS, with is 8.4% invested in China. I could afford to lose 8.4% of my net worth (although I certainly wouldn't enjoy it).

And 8.4% of one fraction of my invested net worth actually seems like a reasonably modest bet on the less likely but certainly not impossible scenario where Xi is replaced by a president more in line with Jiang Zemin, and China goes back to developing/opening/westernizing like they were in the 1990s and early 2000s.

China GDP per capita could potentially still grow another 4-6x (based on how it compares to the western world). And private companies, the ones VXUS owns stock in, have even more room to grow in a westernizing China since they are strikingly more efficient and productive than their state owned competitors.

I don't think China is on track to do any of that today. But in an unpredictable future I'd prefer not to wash my hands of the country when I'm not 100% sure they won't go back to that track during my adult life.

[wageslave23]

I think just like it's hard to pick individual stocks, it's hard to pick individual countries. I've been reading about stock returns by country since 1900 and it would be near impossible to predict in 1900 which countries would be good bets and which ones aren't even around anymore.  Safest thing is spreading your bets around.  But I hate everything China stands for, so I understand if you don't want to be invested in them. But I dont think it's the wisest move financially.

[reeshau]

I suspect (I don’t know, obviously) that we are witnessing the slowing or even a breakdown in globalization, and with it some key rationalization for increasing our exposure to international equities.

Actually, globalization has reduced the rationalization for investing in international equities.  That is, the correlation among global exchanges has increased over time, as businesses and markets have increasingly affected each other.  When looking for diversification, you ideally want uncorrelated assets.  Insulated markets would likely deliver that.  (Of course, there would likely be less opportunity to invest in said markets for foreign investors,  Investment itself has been part of globalization)

You can make an argument that globalization has "lifted all boats" and benefited world growth.  But that can also be expressed in domestic equities.  Approximately 29% of the revenue of the S&P 500 was generated outside the US.

[shureShote]

I have been investing internationally my entire working career (>20 years), about 12-20% of equities, and will continue to maintain that going forward.

I do business with China at work (engine components), and have had great experience for the last decade doing so. Same for India. They are smart and hardworking in my opinion.

[Ron Scott]

I think just like it's hard to pick individual stocks, it's hard to pick individual countries. I've been reading about stock returns by country since 1900 and it would be near impossible to predict in 1900 which countries would be good bets and which ones aren't even around anymore.  Safest thing is spreading your bets around.  But I hate everything China stands for, so I understand if you don't want to be invested in them. But I dont think it's the wisest move financially.

I’m pretty much in this camp. In the past decade or 2 I’ve become concerned with the rise of the far right in the west (Poland, Hungary, US, now France) and expansion/militarization of autocracies like China and Russia.

I won’t know if investing in China is a good financial idea until after the fact but a) I’m satisfied with the diversification I get with VTSAX, b) as mentioned above you get global exposure through US international firms, and c) I’m not all about the last basis point in investing: I want to support the west and hope we get back on track, but I don’t want to support countries like China and Russia. These governments revolt me.

[PDXTabs]

I haven’t done anything yet but am contemplating pulling out of investments that include China and other countries than lean in the China/Russia direction. FWIW, VTIAX is about 8.5% China.

Have you been thinking about this? Thoughts?

I have, but I'm still mostly global market cap weighted a la VT. FWIW VTI+VEA+FRDM accomplishes this.

[PDXTabs]

I do business with China at work (engine components), and have had great experience for the last decade doing so. Same for India. They are smart and hardworking in my opinion.

I just wanted to point out that being smart and hard working is different than having efficient capital markets that aren't corrupt.

[shureShote]

I do business with China at work (engine components), and have had great experience for the last decade doing so. Same for India. They are smart and hardworking in my opinion.

I just wanted to point out that being smart and hard working is different than having efficient capital markets that aren't corrupt.

Oh sure, agree. Didn’t mean for it look like I was purporting a link there (but can see it was an easy walk there from my wording.) i meant to provide a statement about how it has been a good experience working with engineering in China. I prefer some of those teams over some US based teams.

I am not sure I would claim the seven figures I have invested in VTSAX are not invested in areas of the US capital market that are not corrupt at various levels. Some corruption is in eyes of the beholder of course.

[vand]

er, yeah.. of course you should have global exposure. duh.

[Turtle]

er, yeah.. of course you should have global exposure. duh.

My read of the original question was not that it was suggesting pulling out of global exposure, but more a matter of reevaluating the best way to have global exposure.

There are global index funds which concentrate only on specific regions.  I haven't looked at them lately, but this post has me wondering if maybe I should at least look into the idea and do some evaluation.

[vand]

er, yeah.. of course you should have global exposure. duh.

My read of the original question was not that it was suggesting pulling out of global exposure, but more a matter of reevaluating the best way to have global exposure.

There are global index funds which concentrate only on specific regions.  I haven't looked at them lately, but this post has me wondering if maybe I should at least look into the idea and do some evaluation.

If you invest passively then by definition you accept global market cap weighting because the market is efficiently pricing given the relative risk and reward of different regional markets and even different asset classes.

[wageslave23]

I think just like it's hard to pick individual stocks, it's hard to pick individual countries. I've been reading about stock returns by country since 1900 and it would be near impossible to predict in 1900 which countries would be good bets and which ones aren't even around anymore.  Safest thing is spreading your bets around.  But I hate everything China stands for, so I understand if you don't want to be invested in them. But I dont think it's the wisest move financially.

I’m pretty much in this camp. In the past decade or 2 I’ve become concerned with the rise of the far right in the west (Poland, Hungary, US, now France) and expansion/militarization of autocracies like China and Russia.

I won’t know if investing in China is a good financial idea until after the fact but a) I’m satisfied with the diversification I get with VTSAX, b) as mentioned above you get global exposure through US international firms, and c) I’m not all about the last basis point in investing: I want to support the west and hope we get back on track, but I don’t want to support countries like China and Russia. These governments revolt me.

Then I wouldn't invest in them. Like you said, you already have some international exposure and you don't need to worry about leaving some money on the table.  I don't trust their stock market at all, in the US you might have a few companies that are committing fraud such as an Enron. But in unregulated markets like China and Russia, the entire market might have half or a fraction of the actual earnings that are being reported.  The value is in the assumption that there must be some actual earnings due to the volume and growth in business in China but nobody has any idea how much.  Plus you add in the risk that the government could just decide one day to shut the entire market down for a couple weeks or institute assanine policies like only domestic accounts are allowed to sell and international investors are f@cked. Just like Russia is doing.  Say what you want about the US but sh*t like that doesn't happen here.

[maizefolk]

Plus you add in the risk that the government could just decide one day to shut the entire market down for a couple weeks or institute assanine policies like only domestic accounts are allowed to sell and international investors are f@cked. Just like Russia is doing.  Say what you want about the US but sh*t like that doesn't happen here.

The government has ordered US stock markets closed for a full week just in the time I've been following them, and I'm not an old person yet.

Going back much longer in our history, about a century ago the US stock market was closed for four months and afterwards a price floor on trades was enforced (or the price of stocks could rise but not fall) for months more.

If I was going to hold all my assets in a single country I'd feel much more secure with those assets in the US than Russian or China. But it's a difference of degree, not of kind.

[wageslave23]

Plus you add in the risk that the government could just decide one day to shut the entire market down for a couple weeks or institute assanine policies like only domestic accounts are allowed to sell and international investors are f@cked. Just like Russia is doing.  Say what you want about the US but sh*t like that doesn't happen here.

The government has ordered US stock markets closed for a full week just in the time I've been following them, and I'm not an old person yet.

Going back much longer in our history, about a century ago the US stock market was closed for four months and afterwards a price floor on trades was enforced (or the price of stocks could rise but not fall) for months more.

If I was going to hold all my assets in a single country I'd feel much more secure with those assets in the US than Russian or China. But it's a difference of degree, not of kind.

Agreed. But that was 4 days for an attack on American soil. Russia was weeks and faces almost entire developed world sanctions.  I don't foresee the entire western world giving up the dollar, let alone cutting ties with the US. Again, I'm not advocating for only investing in one country. I'm just saying that the US financial regulations and stability is worlds beyond Russia or China's.