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Egypt and the risk of foreign stocks
The revolution in Egypt serves as a reminder of the risk of investing in foreign stocks. On this week's Money Matters, financial commentator Greg Heberlein tell's KPLU's Dave Meyer that events in Egypt don't just make him wary of investing in foreign stocks, he's "horribly fearful"!
How risky are Egyptian investments?
Egypt’s market is small. About the only pure play for a U.S. investor is Market Vectors Egypt, an exchange-traded fund, or ETF. ETFs are much like mutual funds, except they trade directly on stock exchanges. The first day Cairo’s citizens demanded President Mubarak’s ouster, that fund plunged 15 percent. From it’s two-week high, it was off 23 percent. It was a dangerous place to be, literally as well as financially.
What are the pitfalls of investing overseas?
- Foreign markets frequently operate without a policeman such as the Securities and Exchange Commission. Accounting rules in other countries vary.
- News can be difficult to obtain. Full disclosure often is impossible.
- Events can move rapidly. Who predicted the Jan. 27 outbreak in Cairo?
- On top of everything else, you can be dead right about a foreign company’s prospects, and lose all of your gains because of currency fluctuations.
Alternatives to investing in foreign stocks:
The Standard & Poor’s 500 stock index covers about 97 percent of the total value of the U.S. stock market. Almost half of the profits and sales of those companies comes from other countries. Isn’t that diverse?