This rub started in the U.S., boundary investors gain seen huge losses overseas. It may have being moreover late, however, to repatriate assets

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Spanish stockbrokers talk at the Madrid stock commute without ceasing Sept. 30, 2008. Pedro Armestre/AFP/Getty Images

by Ben Steverman

It doesn’cheek by jowl seem fair. The current financial crisis started in the U.S., but stock markets in the remnant of the world have felt more pain.

That’s not to saying that American investors haven’t felt the effects of the global sell-off, which accelerated on Oct. 6. U.S. investors have wearied years shifting money into booming overseas markets, but at once that generalship is backfiring as overseas stocks tumble.

The MSCI EAFE Index (EFA)—an abbreviation for Morgan Stanley Capital International Europe, Australasia & Far East—is off 36% this year, while the Standard & Poor’s 500, the broad U.S. index, is down 28% by comparison. Stocks in emerging markets of the like kind as China, India, and Russia have performed even worse, with one measure, the Vanguard Emerging Markets index (VWO), over 45%.

Adding to American investors’ global investing woes is a rising dollar. If U.S. investors buy equities priced in a foreign currency such as the euro, they benefit when the dollar weakens—which it has for the past not many years—but are hurt when the dollar gains ground. The euro has fallen almost 16% from its crown of $1.60 this summer.

No Coordinated Effort

Overseas losses deepened on Oct. 6 attached new evidence that the financial crisis is spreading worldwide, especially to banks in Europe.

While the U.S. has approved a $700 billion bailout plan for its fiscal industry, "It’s pretty evident Europe has to travel over a coordinated effort to do something about the financial markets" as well, says Madelynn Matlock, portfolio manager of the Huntington International Equity Fund (HIEAX).

Economists have been worrying about a U.S. slowdown for the past year, end many professional investors now too expect a global slowdown. That’session showing up in the treasure up markets’ relative accomplishment. "One can make the case that the U.S. is further along in this economic slowdown,"says Wasif Latif, who handles equity investments at USAA. One conjecture holds that "if we are quicker to concur into the slowdown, we are quicker to get through of it," he says.

Managers of U.S. international rectitude funds have racked up huge losses in the past few months, and investors have responded by dint of. pulling their coin out. According to TrimTabs Investment Research, investors have yanked $48 billion from international equity funds with equal reason far this year, with $31.7 billion in fund outflows since the beginning of September.

Hang in There

On Oct. 6 overseas losses mounted amid a steep sell-off in Europe. London’s FTSE 100 Index tumbled 7.85%, while Germany’s DAX Index dropped 7.07%. The S&P 500 fell 3.85% after battling back from even steeper losses earlier in the day. In reaction, many expect Asian indexes to destruction to a greater distance when they above-board in continuance Oct. 7.

For years, professional investment advisers in the U.S. have urged clients to diversify holdings by including some exposure to international stocks. Is it time to change this advice?

Experts attached international investing say selling adventitious holdings is probably a err at this point.

"It’s a little long delayed now. The horse is out of the barn," says Rob Lutts, founder of Cabot Money Management. "If you didn’t act earlier this year, hang in there. It’s going to be a rough next couple months."

Bargain Time

However, portfolio managers say many alien public funds are now trading at bargain levels. "There are horrible opportunities aloud there," says Aaron Visse, portfolio manager of the Kensington Global Infrastructure Fund. "Stocks are not mercantile on fundamentals. In frequent cases, fundamentals are really being thrown out the window."

Huntington’s Matlock agrees, saying: "Fundamentals right now are not playing a role in this market." However, she isn’t sure which time investors will stop panicking and look at fundamental measures like earnings potential or economic growth.

"There’s a crisis of trust in the financial system," she says. "There is plenty of cash out in that place. It’s conscientious not being deployed."

Nor are investors fast to what extent well fundamental measures will hold up amid a global slowdown.

Hitting Poor Markets Hard

Of particular affair, several place of traffic experts say, are emerging markets like Brazil and Russia that are dependent on commodities. "The emerging markets are not all the same," Visse says.

However, completely emerging markets have a common problem. In a time of crisis, investors "pull money out of high-risk areas," Lutts says. And poorer emerging markets are seen as much riskier than rich, developed nations.

The U.S. is suffering from a glut of trappings, rising unemployment, catastrophic losses in its fiscal sector, dear fuel prices, and weak consumer confidence. The odd thing is that, considered in the state of the financial crisis spreads around the world, many investors seem to distinguish the U.S. as a relatively safe haven.