International- yay or nay?

[moguldreamer]

Originally Posted by ohio_peasant

It's a perennial debate. For years, the "fundamentals" have pointed to impending handsome outperformance by ex-US stocks... and for years, said fundamentals have been handily belied.

If it doesn't violate the TOS, I can post a link to the forum, where now for some 100 pages, there's been a running discussion on "arguments pro/con ex-US equity investment". In brief, the pro-US argument hinges on American exceptionalism, whereas the pro-ex-US argument denies exceptionalism, claiming that everything is cyclical.

I'm surprised the arguments don't focus on the differential in energy prices. An economy, after all, transforms energy plus other inputs such as labor, raw materials & IP into goods and services which are sold, and Europe's high energy prices therefore result in lower GDP and GDP per capita growth.

A trivial example: manufacturing of cells for solar panels: the manufacturing process consumes a tremendous amount of electric power. Wacker Chemie AG in Germany is the West’s largest producer of photovoltaic polysilicon for solar panels, and Wacker Chemie pays four times as much for power at its factories in Germany compared with Chinese producers in remote Xinjiang where the Chinese government has constructed rows of coal-fired, CO2-belching electric power plants to provide electricity to the Xinjiang polysilicon cell manufacturers. To keep the costs of electricity down, none of those Chinese powerplants have expensive pollution control equipment.

Thus, the costs of energy input put Wacker Chemie at a strategic long term disadvantage, and of course China dominates the PVA cell marketplace.

Of course, the Chinese economy itself has problems, but that's another topic altogether.

[ohio_peasant]

Originally Posted by moguldreamer

I'm surprised the arguments don't focus on the differential in energy prices. An economy, after all, transforms energy plus other inputs such as labor, raw materials & IP into goods and services which are sold, and Europe's high energy prices therefore result in lower GDP and GDP per capita growth.

That came up, but was subsumed by the broader topics of regulatory burden (who has more, how costly it is, and whether the trend is improving or worsening) and available natural resources (who has more, how costly is the access, and whether it's improving or worsening)... both of which are part of the exceptionalism-argument. Yet another part of the exceptionalism argument is cultural attitudes towards energy, whether traditional fossil-fuels, or "green".

By way of counterexample, some of the countries with the best access to conventional energy, have had awful stock markets (Russia, Venezuela). And some of the leaders in raw materials for green-energy, while ostensibly innovative and strong, have also had awful stock markets (China).

[Phil P]

My international stocks have been pretty robust year to date, pretty much all latin america and that's been hot. I'm pivoting my portfolio to even more international, like 75% between international debt and equity.

It just looks better from every perspective. There's little geopolitical risk in most of the globe that's not Europe or middle east or China, everyone's recovering from COVID fine, valuations are MUCH better, dollar has to be near it's high... Domestic stocks are crap valuation wise and treasury bonds suck with the rate of deficits, so part of it is that it's just the best alternative. Seeing that the S&P could drop 50% and that would put it at the average valuation range is just frightening, especially considering that most of the domestic economy is just propped up by government deficits.