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Where in the world to invest in 2011

Andrew Leckey

The world is not an easy place in which to invest these days. To make any headway, investors must exhibit the patient determination of an explorer such as Marco Polo.

“There are really no bright spots, but you can find values,” asserted Daniel O’Keefe, lead portfolio manager of Artisan Global Value Investor Fund (ARTGX). “The greatest times to invest are during periods of greatest uncertainty, which, while not psychologically comfortable, is the way it works.”

The current global environment should not alter anyone’s long-term investing strategy, O’Keefe said. Given current stock valuations and the cleaner balance sheets of most companies, over a reasonable period of time you are going to do well investing globally, he predicted.

“We own shares of two European banks – ING Groep NV in the Netherlands and Lloyds Banking Group Plc in the U.K. – and the valuations on which they trade are very distressed,” said O’Keefe. “But barring a total banking collapse, it is our belief that they will do well, though they together do not represent a large portion of the portfolio because the penalty for being wrong is tremendous.”

Some foreign company stocks have managed to shine this year.

For example, Baidu Inc. (BIDU), the leading Chinese-language Internet-search provider whose Baidu.com is the most popular website in China, continues to see its stock rise. It makes most of its money from providing paid search marketing to connect small and medium-sized businesses in China with customers. This cash-rich company founded in 2000 gets paid each time a sponsored link is clicked.

It also offers non-search services in music and online communities to attract greater Internet traffic. One concern: Rival companies are investing considerable amounts to go after some of its market share.

Baidu has been a long-term holding in the portfolio of American Century International Growth Fund (TWIEX), which considers the company the Google of China.

“The debt ceiling debate in the U.S. was really a sideshow to the real concern in Europe over the sovereign debt crisis that has put pressure on the equity markets,” said Rajesh Gandhi, co-portfolio manager of that fund. “But the emerging markets are the one bastion in the world where there is genuine growth from demand in places like China, India, Brazil and even Russia.”

The growth of the middle classes in the emerging markets is a boon for a variety of companies that provide luxury goods, necessities and technology, said Gandhi. It’s not that the emerging markets didn’t use a variety of such products before, but with increasing wealth there is now greater demand for branded products.

Swiss-based Nestle SA (NSRGY), the world’s largest food company, and the U.K.’s Unilever Plc (UL), which sells food, household and personal products in 180 countries, derive a huge portion of their revenues from emerging markets, he said.

Other companies to benefit include Switzerland’s The Swatch Group AG (SWGAY), the world’s largest watchmaker that includes the Omega premium brand popular in China, and Paris-based LVMH Moet Hennessy Louis Vuitton SA (LVMUY), famous producer of wine, fashion, perfumes and other luxury items. Meanwhile, Zte Corp. (ZTCOF), China’s largest listed telecom equipment company, can manufacture an Android-based smartphone “and sell it for less than $100,” he added.

There is logic to investing in exchange-traded funds internationally as well.

“Some people can make the argument that investment in said Europe has become much cheaper than it once was, which would be correct,” said Ron DeLegge, editor of the ETFguide.com. “But, barring that argument and going the other direction instead, you’d want to avoid Europe and look at Asia and other emerging markets.”

There are exchange-traded funds that invest in regions, which may be fine, he said. However, because there are some countries an investor might wish to avoid altogether, single-country funds can sometimes make more sense than going with an entire region, he said.

“Buying on fear presents a buying opportunity, but investors will have to be patient because things aren’t going to turn around just because you bought into the market,” he said.

DeLegge points to several ETFs that he believes offer potential:

• SPDR S&P Emerging Asia Pacific Fund (GMF), which has nearly two-thirds of its assets in China and Taiwan, holds a sampling of around 260 stocks. Asia is no longer so closely tied to the West, which means it can diversify portfolios and is likely to have higher growth. It carries less debt than the more mature regions.

• iShares MSCI Canada Index (EWC), which tracks about 85 percent of the Canadian stock market, does not represent a major portion of the world’s stock market capitalization. However, Canada as an exporter benefits from rising commodity prices for oil, gold and other minerals. Over the past decade, Canadian stocks have outperformed the U.S. stock market. Just keep in mind commodities can be volatile.

• iShares MSCI Australia Index (EWA) follows the Australian stock market that, thanks to an abundance of iron ore and coal, is a major exporter to fast-growing China. It is also investing in liquefied natural gas as an export likely to grow in prominence. Of course, the country’s resources are subject to government regulation and trade agreements, which means that this should only be a “satellite” holding in an individual’s portfolio.

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, Ariz. 85004-1248, or by e-mail at andrewinv@aol.com.

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