As the saying goes, there’s no rest for the weary…
That’s true for me as I’m back in America after a 3-week research trip in Europe, and it’s true for investors tossed back into the market gauntlet to start this week.
I’ve got to tell you, it doesn’t feel any safer watching Wall Street from across the ocean. Today’s interconnected global economy means that markets are linked, for better or worse.
So as I checked in with my colleagues back in Baltimore and watched London and Frankfurt’s trading days give way to New York action, I knew it would be difficult for overseas exchanges to really separate themselves from the downward pressure of the U.S.-led equity nightmare.
Germany’s DAX benchmark is down slightly less than the Dow, but it’s still double digits in the red. Hong Kong’s Hang Seng index is relatively buoyant, down nearly 40% from its late-October peak but still at break-even over 52 weeks.
That’s why you need to look at specific international stocks, real value players with long-term growth strategies and secure financing to weather a tighter credit market.
I told you about some of those from Europe like Spain’s BBVA (NYSE:BBV) and a few Swiss investments, so let’s do a quick follow-up on BBVA here as we get into second-quarter earnings season.
International Growth Stocks
It’s amazing the random and fortunate encounters you can have when you keep your eyes and ears open. Last week about this time, I was sitting outside a Vietnamese restaurant in Berlin’s Kreuzberg district when I struck up a conversation in German.
My interlocutor turned out to be a Spanish banker, in town to work on his German for the sake of clients who own vacation homes in the southern city of Malaga.
We continued on in Spanish, talking about the mortgage crisis as we drank southeast Asian coffee and slurped pho soup. "The Spanish banks are much stronger than American banks, and they have to have more cash on reserve" he told me with an inside perspective.
Though BBVA missed analyst estimates in its Q2 reporting as many companies (especially banks) are doing these days, analysts agree that a strong cash position will benefit BBVA moving forward.
The Spanish property market looks frightful, with deep discounts across the board. That’s hurt BBVA in the recent quarter because of non-performing loans, which are up to 1.2% of all outstanding issues.
Yet this was lower than rival Banco Popular, and doesn’t take into account real growth we’re seeing in Latin markets and forays in China and India that can buttress a Spanish slowdown.
Sound familiar? This is the strategy U.S.-based companies are pursuing as well: fight domestic losses with overseas growth, while keeping debt to a minimum.
We’re seeing it with General Motors (NYSE:GM), which posted a 12.7% sales jump in China vs. 16% decline Stateside in the first half, Yum! Brands (NYSE:YUM, owners of Pizza Hut, KFC, and Taco Bell), and of course more nimble internet enterprises like eBay (NASDAQ:EBAY) which can jump borders at lightspeed.
The point is that true international profits are obscured by negative sentiment today, much of which is justified. But that doesn’t mean there aren’t good companies out there.
In fact, the stock market is taking its lumps because of earnings estimates that weren’t sufficiently revised downward. If everything is so bad, then why are analysts still keeping their pre-meltdown suppositions on how the numbers will come in?
Lowered Expectations, Higher Share Prices
We should look forward to a few quarters of lower expectations, because at that point the listings that treaded water will perform like all-stars.
It’s a sad state of affairs, but taking a broad view time-wise and in where profits will develop is essential right now. Whether it’s more Chevys sold in Beijing or more Spanish banks drawing growth from old Spanish colonies, this is an international market.
Same goes for investors. If you’re content to tie your portfolio’s fate to the U.S. and its financial ailments ($482 billion budget deficit for 2009 announced today!), then just hang around Wall Street.
If not, take a look at Global Growth Stocks and see where tomorrow’s leaders are trading today.
Regards,
Sam Hopkins
