Around Europe: Investment Risks and Opportunities

Things are still going poorly in Iceland. According to Bloomberg the ICEX 15 Index reopened on Tuesday after a three day trading halt. The result was a one day 77% drop. Of course YTD the ICEX was down a little over 50% coming into the Tuesday. I’ve read conflicting reports about whether there are or are not food shortages, this from Dealbreaker yesterday says the shortages are for real. The krona is trading at about 109 to the dollar. When Joellyn and I went there two years ago the rate was in the low 60s.

The drop is skewed some because of the disproportionate weighting the financials had. Kaupthing alone was in the mid 30s. It looks as though Kaupthing, Landsbanki and Glitnir never traded (they all were nationalized one way or another) and so appear to just be gone from the index. The fishery index, made up of Alfesca and Vinnslustoein (that last one some letters and punctuation I don’t have on my keyboard) did a little better, down 17% and no trades respectively.

The comeback for Iceland will have to involve the fishing industry and whatever companies build build production plants–I still hold on to the idea that certain types of manufacturing and data storage will migrate there to capitalize on the geothermal.

I also found this from a site called A Fistful Of Euros (the best name for a blog I’ve ever heard) noting that Estonia, Latvia and Lithuania may be on a similar path as Iceland. I’ve blogged about Latvia’s problems a couple of times before but don’t know much about the other two.

The reason to revisit these places now while they are in various stages of duress is to talk about country selection. Iceland, Lithuania and Latvia are deficit countries (Estonia; current account yes, budget no). The Fistful article also says Hungary (another deficit country) is in trouble too. Although not mentioned in either article above I read in the FT that the Ukraine (yet another deficit country) is having problems as well.

I been on a jag for a while about needing to seek out new investment destinations in order to have a better chance of getting whatever average annual number your plan calls for. Despite the difficulties that many deficit countries are having they are not all forever bad investments. This is a rough time for many of them due to the nature of how the economic cycle is ending. A new cycle will begin and most of them will come back just fine eventually.

This is not to say that surplus countries are not down during this but as an example in the last month the WisdomTree Middle East Dividend Fund [GULF] and the Market Vectors Gulf States Fund [MES] are only down 5% versus 15% for the S&P 500. Norway is down more than the S&P 500 in the last month.

If you envision going more foreign and doing so country by country I think the current episode underscores the need to own different types of countries. Deficit and surplus, service and commodity, emerging and developed, centers of the universe and in their own worlds all need to be represented to maintain a diversified portfolio. Obviously a country can serve as multiple proxies just like a stock can.

Some sort of defensive plan is also still important either on a portfolio level or country level.

On a related note IndexUniverse reported last week that iShares filed for a Peru fund. I don’t know when it will list and chances are it won’t be that popular but as more of these products list and if the need to have more foreign does head where I think it will then a lot of these funds will become portfolio savers–if the providers can hang in there long enough with them.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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