Hedging International Stocks
Many portfolios have added international stocks for diversification over the last decade or so. This comes in the form of both equity (for the growth and diversification) and debt (for the added yield). Unfortunately, many international markets, both developed and emerging, have severe economic problems. Roughly $140 trillion of the $200 trillion of U.S. dollar denominated debt lies outside the United States. This is a worrisome situation if the dollar strengthens against many other currencies, making the debt more expensive to pay-off. There are several inverse ETFs that can hedge some exposure to foreign debt and equity.
Developed markets around the world may not get the intrigue that emerging or even frontier markets get, but that does not make them any less risky. On the developed side, commodity-linked countries like Canada and Australia are experiencing serious financial strains. The housing market in Canada is especially alarming. Germany is cause for extra concern as its Central Bank and it’s financial institutions such as Deutsche Bank, seem to have the weight of the Eurozone on their shoulders. Emerging markets like the BRICS (Brazil, Russia, India, China and South Africa) have also seen carnage. We examine the two main classes of international markets: