Global Investing and the Winter Olympics

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Global Investing and the Winter OlympicsLike most Canadians, I spent many hours in front of the television this February, eyes glued to the spectacular Olympic Games. The Games were a testament to the long and rich athletic history of the world. As athletes from all over the globe paraded into the stadium in the Opening Ceremonies in the great show of national identity and pride we’ve come to expect, I was struck, not so much by the uniqueness or differences, but by the increasing sense of interconnectedness. There was the first-ever Dominican Winter Olympic team, consisting of two American cross-country skiers; the Korean speed skater who now skates for Russia; the Zimbabwean alpine skier who grew up in Switzerland and trains in the US. 

The list goes on and on. National lines have begun to blur as to where an athlete trains, the background of their coaches and even which country they represent. They have increasingly become matters of choice. Expertise and training methods that were once national secrets are now being shared across the world (albeit, often for a price.) 

The changing landscape of international athletic competition mirrors the trends we’re seeing in today’s global markets. Traditional asset allocation defines assets by their country of origin. If a Canadian company issued shares, we categorized them as Canadian Equity. If a mutual fund invested in shares of American companies, we called it International Equity. 

But over the last few decades, the global economy has become increasingly interdependent. Economic reforms, free trade agreements, and the European Union have made it possible for companies to compete for customers, materials, labour and investment capital on a global scale. Companies all over the world have a growing number of distribution networks, suppliers or manufacturing facilities in multiple countries. 

This global integration means that many companies may now be more affected by the economic conditions of locations far from their country of domicile. Take, for example, the US-based hotel booking site Priceline.com. It targeted US consumers with its launch in 1998, but through growth and acquisitions, now generates more than 62% of its revenue from Europe. Nestle, the large Swiss-based company, by comparison, generates only 25% of its revenue from Europe. Would we still categorize an investment in Priceline as “American”, and Nestle shares as “European”? Which company likely stands to benefit most from the signs of European economic recovery – the “American” company, or the “Swiss”? The lines have blurred, and we begin to see that economic conditions anywhere in the world could provide both benefits and risks for companies in Canada, the US, or elsewhere. 

Another factor is the rise of a middle-class in developing nations. These populations have been increasingly exposed to the trappings of western culture, and they want in; from cell phones and electronics, to sugar-laden beverages and luxury vehicles. While companies domiciled in these areas still represent a very small portion of the global arena, emerging markets now account for a huge one-third of global demand for goods and services. So as the economies of the US and Europe continue their recovery, slower growth in emerging markets will certainly have an effect on many companies in North America, Europe and around the world. So what does all of this mean for investors here in Canada? In the grand scheme of things, Canada is small. A well-diversified portfolio needs to have investments outside our own borders. That can mean investments in companies domiciled in countries outside our own, or in Canadian companies that do significant business in other countries. 

But finding your way through the complicated web of markets and economies, and trying to figure out what that means for individual investments, and where you should place your hard-earned dollars can be a daunting task. Analysts and professional money managers put countless hours into such research. At the end of the day, as an investor in today’s world, the geographical location of your investments is less important than holding investments that are best suited to your objectives in terms of growth, income, and risk. Your Rogers Group Financial advisor can help you wade through these tides of global change.