“As the idea of a global market increasingly became a reality throughout the 1990s, large multinational companies offered investors the best risk vs. return ratios. Mutual funds that invest in a particular geographic region offer another way to add international equities to your portfolio.” - Harry S. Dent, Jr.

If investing in the equity markets of emerging countries does not suit your risk profile, consider multinational companies or a mutual fund that gives you broad exposure to a select international region.

Multinational equities

The primary advantage of large cap multinationals is that they tend to be highly diversified around the world. They even manage much of the currency risk for investors, resulting in high margins and high growth rates.

Though large cap multinationals did not perform as well as the best sectors ; technology, financial services and health care ; they had the best risk versus return ratios in the 1990’s. The reasons are simple. First, such investments offer the stability of a large company because they are market leaders for products and services that have already reached the Maturity phase on the S-Curve in developed countries. Second, these companies have the resources and expertise to develop new markets in rapidly growing economies. Buying shares in a multinational is, among other things, buying their expert evaluation of the best new international markets.

For example, Coca-Cola has saturated the domestic market but it, along with corporations such as General Electric, MacDonalds, Wal-Mart, and Enron are aggressively pursuing new markets abroad. Nokia is an example of a Finnish multinational corporation whose domestic sales (that is, in Finland) are a just a fraction of its total annual revenue. Likewise, Japan’s Sony Corporation has aggressively extended its marketing efforts into developed regions like the U.S. and Europe as well as emerging economies, so much so that the majority of its growth comes from exports.

Regional Funds

A second way to invest in international markets without selecting individual countries on your own is to choose a mutual fund that represents a geographic region. Obviously, funds that focus on developed countries like Europe are going to be less risky than funds that focus on emerging countries in Africa, Latin America and the Pacific Rim region. As an investor, this simply means that you have a wider range of choices to suit your risk/return profile.

Since international markets have exhibited substantially more volatility than the Dow and S&P 500, Harry S. Dent, Jr. recommends that you invest in regional funds only after a major correction. This way, you buy at a better value and minimize the downside risk.

We have seen the best long-term returns in the last two decades from Asia, excluding Japan in the 1990s. Asia has the most favorable demographic and urban migration trends, and Mr. Dent expects it to continue to be a good buy in the first decade of the 21^st century. In fact, select countries in Asia will represent one of the few buying opportunities during the Deflationary Shakeout that Mr. Dent has forecasts for the U.S. and most of the world beginning between late 2008 and 2010.

However, if you are buying an Asian fund now and up until around 2008, select one with a minimal investment in Japan. Japan’s demographics indicate that its economy will not begin to boom consistently again until that time. After 2008 Japan along with South Korea, China and Thailand will continue to have positive demographic trends when our domestic economy is in decline.

Another region Mr Dent recommends is Europe, and in particular European large cap stocks. I project that Europe will be strong through the first decade of this century due to generally favorable demographic trends. Also, the formation of the European Economic Union (EEU) has stimulated the economy by forcing many older companies to re-engineer, downsize and merge as have U.S. companies in the last decade. The result is higher corporate profit and better opportunities for investors.

The U.S. will likely continue to be the best risk/return equity market through around late 2008. Yet even now, investing in multinational equities and regional funds can help you diversify your portfolio for greater returns and low risk. After 2008, beginning to shift your wealth to select international sectors, especially Asia, will be a must for the savvy investor.