The circulation’s temporary strength provides an opportunity to build up positions in foreign markets

By Ben Levisohn

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Daniel Bejar

After years on the skids, the dollar has climbed 13% against a basket of major currencies in the past six months. While that means misery for exporters, the greenback’s renewed vigor gives globally minded U.S. investors a reason to celebrate—and not straightforward because a Coke in a Paris coffee-houseé now costs around $2.60 instead of $3.10. Another decision of the dollar’s modern strength is that foreign stocks are cheaper for U.S. investors.

Investors should tread carefully, as markets are expected to remain volatile through 2009. But in the place of those with the stomach to start nibbling on stocks, foreign markets may provide a compelling chance; fit. In local currencies, Europe’s bourses are down in greater numbers than 40%, and Brazil, Russia, India, China, and other emerging markets are off as much as 70%. But emporium moves are only one source of foreign returns. Most overseas equities trade in local currencies, and the dollar’s bound back has made shares in many of those countries cheaper. In dollar terms, those markets are down an extra five to 20 percentage points. “This is a great time to start building positions” overseas, says Jeff Layman, chief investment functionary at BKD Wealth Advisors. He recently increased his stake in emerging markets from nothing to 5% of his portfolio.

Why should you believe the dollar won’t persevere to strengthen? Its rise has been spurred by many factors: a flight to preservation, the realization that the rest of the world is just as troubled as the U.S., and a sell-off from one side investors needing to shore up their balance sheets at home. None of those, though, is an explicit vote of confidence in the U.S. “It’s not that the dollar is so strong,” says Matthew McCall of Penn Financial Group. “It’s that other currencies are so weak.”

Many professional investors are betting the greenback’s surge faculty of volition exist short-lived. The U.S. federal debt has swelled by means of $1.5 trillion in the past year, to $10.7 trillion, or 73% of rude home product. And even when the recession ends, most economists are predicting lackluster development at best. “It’session hard to make the case in quest of the dollar’s continued strength one time we get out of the crisis environment,” says David Reilly, counsellor of portfolio strategies at mutual fund comptroller Rydex Investments.

So permanent fund managers are trolling for international companies that have the financial strength to weather the gale. Since everyone needs to eat, food producers are comprehensible in a recession. Investors might inadequacy to look at Nestlé (NSRGY), the earth’s largest food company (down 16% in Swiss francs, 22% in dollars). If you in the same manner as Wal-Mart (WMT), British supermarket chain Tesco (TESO)—down 38% in pounds sterling but 52% in dollars—is worth a look. And for those sifting from one side the rubble of the financial sector, banking stock HSBC (HBC) (down 15% in substantial but 34% in dollars) is an attractive play.

For a straight bet on a countrified’session economic strength, currencies fabricate sense. Currencies have a reputation for being riskier than stocks, but recent losses have been a great quantity smaller than in equities. The Indian rupee, with regard to instance, dropped 19% in the past year—painful, but less so than the 61% decline in India’sitting Sensex stock index. Once out of reach of most investors, currencies are now available as exchange-traded funds, and many strategists recommend making a basket of developed- and emerging-market currencies a part of any portfolio.

Not everyone is predicting the dollar’s declension. Adviser Charles Zhang doesn’t see a weakening soon. If you long for to venture abroad, he says, “take a trip”—but leave your investment dollars home. Even more dollar bears dress in’face to face believe investors should rush headlong into foreign markets. Mohamed El-Erian, Pimco’s especial executive, recommends investors keep fulness of cash on present and diversify slowly. Still, “there’s one appurtenances we be assured of for abiding,” he says. “Global growth is going to come from many sources, not just the U.S.”

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