If you’ve invested for long, you’ve likely heard of “home-country bias”…
It’s exactly as it sounds. It’s the idea of only investing in stocks listed in your own country.
Here in the U.S., home-country bias is great most of the time. After all, our capital markets lead the world. And our stocks outperform global markets about 56% of the time.
But that isn’t always the case…
Investment giant BlackRock recently researched 10-year rolling periods from 1971 to 2021.
When U.S. stocks returned less than 6%, BlackRock found that international stocks outperformed 94% of the time. And when U.S. stocks returned less than 4%, international stocks outperformed every single time.
Of course, U.S. stocks are down significantly in 2022. So with odds like that, I wouldn’t be surprised if you headed straight to your broker to buy some international stocks.
Not so fast…
You see, that statistic comes with a big asterisk. Put simply, it’s bad in the U.S. today. But it’s worse in Europe. In fact, things are bleak in most of the rest of the world as well.
Let’s take a closer look…
First, political instability is a big deal right now…
Russia invaded Ukraine back in February. That move amplified uncertainty around the world. And as we’ve seen, the European economy is taking the brunt of the storm…
Before the invasion, Russia and Ukraine exported many goods across Europe. But now, they’re not doing that (or they’re charging much more to do so).
It gets worse when we look at the energy markets in particular…
According to the latest Eurostat data, energy costs in Europe are up more than 40% over the past year. It’s much more expensive for Europeans to fill up their gas tanks, heat their homes through the fast-approaching winter, and just keep their lives running in general.
In comparison, the latest numbers from the Bureau of Labor Statistics show that energy costs in the U.S. aren’t up as much. They’ve risen roughly 20% over the past year.
In other words… Europeans are dealing with an even bigger inflation problem than we are in the U.S. And even more alarming, this problem likely won’t go away anytime soon.
In September, the annual rate of consumer-price inflation in the eurozone was 9.9%. And when they were released Monday, the latest numbers for October shocked many analysts…
Eurozone inflation came in at 10.7%. That was much higher than the experts expected.
That’s a huge problem for Europe’s economy…
As we know all too well in the U.S., the European Central Bank will need to keep raising interest rates if inflation keeps rising. And in general, rising rates are bad for stocks.
Major media outlets and economic experts are beating the drum about a “likely recession” in the near future for Europe. And mountains of data support that conclusion.
While some companies will survive the storm, it’s best for American investors like us to avoid straying from home-country bias today. Stay away from European stocks for now.
The picture isn’t too pretty here in the U.S. But as we’ve seen, it’s worse in Europe.
Good investing,
Karina Kovalcik
