By now you know that Standard & Poor's has downgraded the U.S. credit rating for the first time in our country's history from AAA to AA+ with a negative outlook (for shame). What you may not know is the list of countries who still maintain a AAA rating. Here is that list: Australia, Canada, Denmark, Germany, Holland, the U.K., Norway, Singapore, Sweden, Switzerland, Austria, Finland, and France. And while President Obama sounded like a sanctimonious doofus when he said "we've always been and will always be a triple-A country" (actually, in point of fact, we're not), our downgrade did not actually change the investing landscape very much.
Just take a look at that list again. With regards to stability, currency, safety, size, and liquidity, which country, from a common-sense standpoint, truly bests the U.S. when it comes to deciding where to stash your risk-averse capital? I'll say none of them -- and institutions seem to agree, with U.S. rates dropping even after the downgrade.
|
AAA Market |
Latent Problems |
|---|---|
| Australia, Canada | Relatively small economies with overvalued currencies tied to natural resources -- and Australia is on the verge of a banking crisis due to a housing collapse. |
| Denmark, Norway, Sweden, Finland | Small economies with rising liabilities. |
| Germany, Holland, Austria, France | Eurozone economies that will ultimately be on the hook to bail out their less-than-creditworthy brethren. |
| Singapore | Small, tied to financial sector, and reliant on China. |
| The U.K. | Recent nationwide riots underscore many fiscal and structural issues. |
Source: Author's opinion.
I don't think it's going out on a limb to predict that this club of AAA markets will only keep shrinking in the coming months and years. In other words, those easy-to-hate and sanctimonious French (and you'll have to read to the end to see how many times I can work that word into this column) won't be able to be so sanctimonious for long (that's three).
What to do
Of course, many investors already know this, which is why we haven't seen a flight from U.S. Treasuries to French or Singaporean bonds even after the downgrade. It's why investors in both bonds and equities have been fleeing Europe. European obligations are looking increasingly more severe than those here in the U.S., and their system for dealing with them is even more dysfunctional.
This is why I recommend you stick to the AA+-rated U.S. for safety and start looking largely at AAA-rated Europe for opportunity amid the crisis.
The global view
Let me be clear: Europe is not better off than it looks. In fact, I think it is worse. But there are plenty of companies in Europe that are being treated like European companies when in fact they are not. This is where the opportunity is. Here is a list of companies being sold off recently that could probably boost their stock prices simply by moving their headquarters to a new country -- and a country more representative of where in the world they are actually doing business.
|
Company |
Headquarters |
Revenue Outside of Developed Europe |
|---|---|---|
| Telefonica (NYSE: TEF) | Spain | 56% |
| ArcelorMittal (NYSE: MT) | Luxembourg | 71% |
| ABB (NYSE: ABB) | Switzerland | 61% |
| CGG Veritas (NYSE: CGV) | France | 61% |
| Unilever (NYSE: UL) | Netherlands | 73% |
Source: Capital IQ, a division of Standard & Poor's.
While these are all European companies in name, they are not so European in practice. But the market is still selling off these stocks either because they are based in Europe or because investors are selling off European indexes that hold these names.
Why should Fools take the opportunity today to build a basket of these truly global companies that will benefit over the long term from outsized growth in emerging markets? Because, at the risk of sounding sanctimonious, we are smarter than the average investor.
Get Tim Hanson's top global stock picks by joining Motley Fool Global Gains. Tim's "Global View" column appears every Thursday on Fool.com.
