Morningstar Advisor - February/March 2010 - 35

Spotlight The Global View from Abroad Managers from outside the United States give their perspective on the world’s opportunities and risks. It’s a big, complex, unruly world. Most good financial advisors realized that before the global financial crisis and did their best to stay abreast of international developments. Nevertheless, the past two years have been a blunt reminder that overseas and domestic markets and economies can converge, diverge, and influence each other in unpredictable ways. Thinking about your portfolios in global terms has never been more important. Few advisors have global practices, though, and for the more provincial, it can be difficult to develop an informed and up-to-date international worldview. We can help. Morningstar has fund analysts stationed all over the globe, interviewing managers and performing due diligence on their portfolios. We recently asked Morningstar’s overseas fund analysts to ask prominent global managers in their home markets pressing questions about the state of the United States and international markets. The result was a virtual panel discussion that offers a glimpse of worldwide investing opportunities and perils from the vantage points of the United Kingdom, Europe, and Australia. Q: Where do global markets stand now and where do you see the best opportunities? Paul Moore, PM Capital, Australia: Markets are wanting to respond positively to economic news but they are still nervous that the economy could disappoint. A lot of stocks are bouncing up to short-term highs, and I suspect they will continue to move upward in the early part of 2010. suspect this factor may be counterbalanced by a wall of money deciding equities are a better inflation hedge. Vincent Strauss, Comgest Magellan, France: Banking stocks, in contrast, have pulled back 10% to 20%, which is interesting as they are the most sensitive to improvements in their domestic economies. I suspect it is supplyrelated, and thus with TARP and similar related supply coming to the market, banking stocks such as Wells Fargo WFC, Bank of America BAC, JP Morgan Chase JPM, BB&T BBT in the U.S.; and ING ING and KBC are the most interesting opportunities I see today. Jack Lowenstein, Hunter Hall Global Ethical, Australia: Markets seem to have gotten back Investors were too pessimistic in early 2009, and after the flood of liquidity and the very early signs of economic growth, they now are too optimistic. We believe the fundamental problems that led to the financial crisis are still not resolved. We should separate the “casino” part of the banks from the prudently managed lenders. “Too big to fail” should mean “too big to exist.” There are still major problems and bad debts held by Western banks. Consumers lack the confidence and spending power to participate more in the recovery, and regulators as well as central banks are at risk once again of complacency in front of another forming asset bubble in Asian/emerging markets. In such a market, we think U.S. government bonds are overvalued and may be considered as an investment for masochists. We still favor equities in developing markets and real assets such as gold and gold producers. While we are not comfortable with the recent strong rally in these two asset classes and today’s pricy valuations, we are pessimistic that the air will be let out of this bubble anytime soon by either central banks or investors. The former is compelled to keep to “business-as-usual” valuations, but it is not clear that economies have really shrugged off the effects of the [global financial crisis] as definitively. We are finding better equity opportunities in Asia than elsewhere, especially Japan and Korea. Developed-country bonds look generally overpriced. Any hint of credit deterioration or inflation will probably see bond-fund redemptions surge and maybe even panic selling by banks facing mark-tomarket hits. Even though rising bond rates would mean rising equity discount rates, we MorningstarAdvisor.com 35

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Morningstar Advisor - February/March 2010

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