How Global Trends Will Affect Your Portfolio in 2014

Global trends are sure to affect your investing strategy in 2014. The world is getting smaller and smaller, and you must take notice of these rising trends.

Mar 8, 2014 at 12:00PM

There's no denying that financial markets are becoming increasingly intertwined. The massive increase in international trade over the past few decades is responsible for this and the ripple effects that it creates.

For example, a strong economy in China means consumers there have more money to spend on $5 Frappuccinos at their local Starbucks. If Starbucks sells more coffee in China, the company will purchase more coffee beans. This, in turn, would benefit growers in Latin America and Africa. These growers would then buy harvesting machines designed in Europe and assembled in Asia.

Even if you invest in companies that don't have international customers, they may sell to clients that do and thereby expose you to a "spillover" effect. The chart below shows just how much some of the bellwethers of our economy rely on international sales.

Global

Source: Wall Street Survivor.

There's no hiding from the intertwining of global economies and its effect on the financial markets. Here are some long-term trends to keep an eye on, as they will undoubtedly have an impact on your portfolio.

China
Let's start with the obvious. China is already the second-largest economy in the world and is by far the fastest-growing of the major world powers. Because of the rising wealth of its massive population, China is a huge export market for Western consumer-product makers.

The breakneck speed of infrastructure development in China also makes it the world's largest importer of natural resources. This fuels the earnings of virtually every mining and energy company globally.

After two decades of hyper-speed growth, China's economy is finally decelerating. The nature of the deceleration (gradual versus volatile) and where growth finally levels out to will impact every stock market globally. A slowdown in Chinese growth will have an especially profound effect on Latin America, Africa, and Australia, where natural-resource production constitutes a major portion of their economies.

Brazil, India, and Russia
These countries represent the next tier of the fastest-growing major economies. Similar to China, they are all characterized by an expanding and increasingly prosperous middle class with an appetite for Western products.

These consumer markets will continue to expand so long as their underlying economies perform well. All three countries share the unfortunate trait of having corrupt and inefficient governments. Until recently, these weaknesses were masked as the countries rode on the coattails of China's growth.

As their economies become more mature and China decelerates, these inefficiencies will become more apparent and obstructive to growth. Investors should be mindful of whether their governments are taking the necessary steps to address these structural inefficiencies by cracking down on corruption and decreasing bureaucracy. Otherwise, a slowdown in these economies will hurt Western companies that rely on international sales.

United States
And now for the 800-pound gorilla in the room. Although the U.S. has leveled out to a much slower rate of growth than it enjoyed in the previous decade, it is still by far the largest economy in the world (double that of China) and touches every equity market on the planet.

By comparison, the U.S. has one of the least corrupt and most efficient economies, creating an environment that attracts entrepreneurs and facilitates business activity. Recently, one of the biggest threats to U.S. growth has been political deadlock.

The near-failure of Congress to raise the Federal debt ceiling last year sent markets reeling worldwide. The U.S. supplies much of the capital that finances growth in other economies. If a Brazilian mining company needs $5 billion to build a new mine, it's likely that a good portion of that will come from a U.S. investment firm. If political deadlock led to a default on U.S. debt (widely considered the safest investment in the world), many U.S. investors would enter a state of fear and pull their money out of the market.

This would wipe out the financing required to fund projects worldwide and bring the global economy to a screeching halt. Whether or not the U.S. government can reduce its acrimonious partisanship and learn to compromise will have a profound impact on markets everywhere.

What you can do
You can gauge your portfolio's exposure to these global factors by understanding how much of the sales of your portfolio companies are generated domestically versus abroad.

A company that relies 100% on domestic sales may still be indirectly affected by a slowdown in the Chinese economy, but to a much lesser extent than a company that makes half its revenue in China.

The bottom line is that you don't want your portfolio to be overloaded with companies that rely heavily on one particular region for their business. If that's the case, you're essentially making a bet on the economic growth of that region. That may not be the investment thesis you originally had in mind.

2 Exciting Plays on Chinese Growth
U.S. automakers boomed after WWII, but the coming boom in the Chinese auto market will put that surge to shame! As Chinese consumers grow richer, savvy investors can take advantage of this once-in-a-lifetime opportunity with the help from this brand-new Motley Fool report that identifies two automakers to buy for a surging Chinese market. It's completely free -- just click here to gain access.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers