That's exactly why some money managers think it's time to get back in the game.
Doesn't make any sense? It's a classic investing principle that works outside U.S. borders as well as within.
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Dow Jones Global Indexes show as of Thursday, Brazil's plummeted 52 percent this year, crisis-ridden Indonesia has nose-dived 68 percent and Mexico's lost 48 percent. That makes even Tokyo's Nikkei 225 index look attractive: it's only down 15 percent for the year.
"This is probably an excellent opportunity because of the setbacks in these countries," said BankBoston's Chief Investment Officer Ned Riley. "It's the old adage that the best time to buy an asset is when it's out of favor."
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Of course, betting that international countries will perform better than U.S. markets was exactly what got investors in trouble in the first place. Which is why they shouldn't dive head-first into world markets again. There's still some serious stability problems throughout much of the world, so that old friend "diversify" should never be leaned on more heavily than with overseas investments, experts said.
Riley's advising BankBoston clients to shovel 20 percent of their interests internationally, but only into well-diversified, established mutual funds. Just 3 percent of the investment should be in emerging markets, and that's only if the investor's got a stomach of steel.
Terry Sandven, director of the portfolio strategy group for Piper Jaffray, recommended small investors who have years for their 401Ks to mature put close to 30 percent of their investments in international funds.
"Studies show a diversified portfolio that contains international investments will outperform," Sandven said. "We think there's great opportunity."
But only investors who like playing Russian roulette should pile short-term cash reserves into international markets. Otherwise, the chips should e laid down by people who don't mind keeping them there for a few years, money managers said.
"You need to give yourself three to four to five years," Sandven recommended. "The near-term visibility just isn't there."
However, one overseas manager adamantly opposed individual investors dabbling into emerging markets, arguing any investor could take a bullet putting money in unstable world investments. Jeff Hooke, director of Emerging Markets Partnership firm in Washington, D.C., said emerging markets have already lost so many people so much money they should only be left up to Wall Street's big boys.
And even they can't handle markets that "have a lot of inside trading and much more of a casino feel."
"There's no way you can recover in your retirement portfolio an 80 percent loss," he said. "It's embarrassing for the mutual funds like Fidelity and T. Rowe Price to even say something like that. They've lost investors billions and billion of dollars."
"I think for the average, individual investor, the emerging market's not a good place to put your money," Hooke said. "Period."
His description of "emerging markets" fits the mold of many on Wall Street. Emerging markets encompass about 70 percent of the planet, knocking out only North America, Western Europe, Japan and Australia.
European countries are "much sounder investments," Hooke contended. "They don't lurch from one crisis to another."
"For those bottom-fishers .. Japan might be an interesting bet," he said. But while Hooke may think he's far off Wall Street's path, many others following world markets agree with his tactics.
Riley argued it's vital that the funds invest in a number of different countries, measuring risky regions like Latin America and Asia with settled ones like Europe.
"Making a country bet in this kind of environment is almost as dangerous as making a one or two stock bet," Riley said.
But gamblers might be tempted by Alexei Izyumov's tastes of Russia. Izyumov, director of the Center for Emerging Market Economies at the University of Louisville, contended Russian stocks have been beaten down so badly that a lot of the big caps suddenly look sweet.
Izyumov said Russia's largest wireless telecom company, Vimpel Telecom (VIP), is trading at less than two times earnings, making its price downright cheap. The stock's high for the year was 59 7/16, which it reached in early May; on Friday, it traded up 1 7/16 to 7 3/8.
Another is Gazprom, which Izyumov said controls one-third of the world's natural gas reserves and supplies natural gas to Russia and Europe. He said the company's potential valuation is more than $500 billion, or twice the size of Microsoft.
"I tend to think investors have to consider going back to their drawing boards and invest for buying opportunities in those markets, not waiting for everything to settle down," Izyumov said "Those bargains might not repeat themselves in some of those countries any time soon."
Written By Tiare Rath