Betting on U.S. or world economies misses point

NEW YORK — While Wall Street is still debating which economies abroad might join the United States in a slowdown, investors shouldn't wait for an answer.

Readings — from Spain to Japan to still-emerging economies such as China and India — point to economic headwinds of varying strength. But observers say it's too early to count out some of the star performers of the international markets of the past four years. At the same time, with the prospects for the U.S. economy still murky, it's probably prudent for many investors to rebalance their holdings rather than make an ill-conceived shift that leaves too much exposure to one economy.

Jeffrey Mortimer, chief investment officer at Charles Schwab Investment Management in San Francisco, likens the U.S. economy to the front of a train that started down a hill when the rest of the train — the remainder of the world — stayed on level ground.

"The question is, does the U.S. pull the rest of the world (down) that hill? I think that in fact it may be playing out that way, that the world will now slow. But what the U.S. does is still a wild card," he said.

Still, Mortimer contends investors who have had a good ride in international investments shouldn't give up on them; Schwab recommends that about 25 percent of an investors' portfolio be in international holdings. Mortimer said investors who let international names grow to represent too much of their portfolios might consider diverting some money to beaten-down markets, including those of the United States.

"Take from the winners and give to the losers," he said.

Steve Tyson, chief investment officer at MFC Global Investment Management in London, has concerns about the U.S. economy. But he says Wall Street, having been in the doldrums longer than some other markets, could be poised for a rally — even if areas such as consumer spending remain weak.

"The economic data coming out of the States recently is not as bad as the data we're seeing in Europe or the slowing in Asia. However, I think this is a false dawn in the U.S. economy, and I think the U.S., like Europe, is going to be mired in economic problems for the next year or two whilst we overcome what I call the consumer hangover," he said.

Tyson predicts that the recent drop in oil prices and other commodities will help curb inflation in many economies and could make investors more willing to jump into the United States and other markets that have been hit by economic worries.

Some of those who forecast an acceleration of the U.S. economy and a resulting turn higher by U.S. stocks point to the dollar, which has been showing signs of life. The stronger greenback has made the currency more attractive to foreign investors and helped lower oil prices, and in turn, prices at the gas pump. The easing in the cost of everything from fuel to food could help consumers and businesses alike.

"Falling oil prices are an instant, ongoing rebate check into the pockets of consumers," said Rafael Resendes, portfolio manager of the Toreador Large Cap Core Equity Fund in Fresno, Calif. He sees a more robust dollar as a boon for the United States, even if it makes some U.S.-made goods more expensive for foreign buyers.

But determining where U.S. and international economies are headed is difficult, so investors should look beyond what has done well and try to make reasonable predictions about areas that could be ripe for a turn higher, Mortimer said.

An investor with too much weight in international stocks could gradually add to small-cap names in the United States, he said, without abandoning either market.