As an investor from the Netherlands, I am naturally exposed to the local currency (Euro). However, given the actions of central bankers and their frequent use of “printing presses”, there is a concern that inflation may gradually erode our purchasing power. Therefore, I personally believe in the importance of global investment to diversify across different markets and currencies. This thesis extends not only to the Euro but also to other major currencies such as the United States Dollar and the Japanese Yen. By expanding our investment horizons, we can potentially mitigate the impact of currency fluctuations and safeguard our wealth.
Choosing Foreign Stock Markets to Invest In
When considering foreign stock markets, I find it’s important to evaluate countries with low levels of debt, similar to how one would assess companies with low debt-to-earnings ratios. To determine a country’s debt level, we can refer to the Debt-to-GDP ratio, which measures a country’s annual earnings, or Gross Domestic Product (GDP), against its debt.
There are several online resources available that provide information on this topic, both free and paid. I prefer to use TradingEconomics.com, which offers a free version allowing you to sort countries based on their reported debt-to-GDP ratio. This can be a valuable tool in identifying countries with lower levels of debt relative to their GDP.
Balancing Country Risk and Debt-to-GDP Ratio
It is crucial to remember that conducting due diligence is a comprehensive process that encompasses various factors, beyond solely relying on metrics like a country’s debt-to-GDP ratio. Before making any investment decisions in a particular country, it is essential to thoroughly assess the associated country risk. To facilitate a comprehensive Country Risk Assessment, I recommend exploring the 11 free resources provided in this Country Risk Assessment link. These resources will provide you with valuable insights and analysis to help you make informed investment choices.
Once you have identified a country with a relatively low debt-to-GDP ratio in a secure jurisdiction, it is time to utilize your stock selection skills. If you are not comfortable selecting individual stocks, consider investing in a country-specific ETF (Exchange-Traded Fund). However, it is important to evaluate the valuation and ensure it aligns with your investment goals before making any investment decisions.
Image source: https://worldpopulationreview.com/country-rankings/debt-to-gdp-ratio-by-country