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Investments growing globally

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Investors failing to see how U.S. stock indexes can outpace the U.S. economy may be missing the picture of global growth, Bob Landaas says in a Money Talk Video. Here is a transcript of the video.

I think one of the more unnerving issues for American investors is that we’re not driving global growth currently.

When I first started managing money in 1975, approximately 14 percent of the earnings from the S&P 500 came from outside the United States. As of the first quarter of this year, almost 60 percent of the earnings of the 500 biggest companies in America came from overseas.

And the point simply is that the rest of the world is playing catch-up. We’re seeing global growth accelerate. If you look at Brazil, India and China, it’s almost 40 percent of the world’s population, and they’re currently growing on average two and a half times as fast as the growth that we’re experiencing here in the United States.

So I’m of course sympathetic to the unemployed here in the United States. I think housing is barely recovering. Retail sales are fairly anemic still in America. But when you look across the world, growth is continuing to accelerate.

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One of my favorite data points from last year came from the World Bank. The World Bank estimates there are about 400 million people in the middle-class worldwide. They think that number is going to triple between now and 2030, and none of that growth is coming from the U.S., Europe or Japan. It’s all coming from Latin America, principally Brazil, and then Asia.

American investors need to make sure that they have adequate investments overseas. Of the 50 top wealth managers in the United States, the average recommendation is to have at least 15 percent of your stock market investments outside the United States.

Now, of course, you have the normal stock market risk, but when you go outside the United States, you also have currency risk. One of my favorite ways to play it is to invest in multinationals that are domiciled in the United States but do significant business in the emerging world.

So often, clients talk to me about the U.S. economy and not fully appreciate the fact that almost two-thirds now of our earnings come from outside the United States.

So I’m as interested in what’s happening in Brazil, India, and China, Indonesia, Southeast Asia. Those are critically important components of the engine for earnings.

And as long as we see expansions of multiples, meaning that the PEs are going up now – there’s been a lot of homework done on that subject, that we can have higher multiples in a low-inflation, low-interest-rate environment – I’m fairly optimistic for the next couple of years for stock prices.

Bob Landaas is president of Landaas & Company.

Money Talk Video by Peter May

(initially posted June 19, 2013)

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