As the U.S. recovery continues and the economy normalizes, the problems—and opportunities—elsewhere in the world are becoming more important to American citizens and investors.
There are two big questions we need to ask ourselves:
• First, what are the risks we should be paying attention to?
• And second, where are the opportunities?
I’ve always believed that understanding the risks allows you to identify the opportunities, so let’s start there.
Which countries are riskiest right now?
I prefer to analyze risks on a country basis. Although some risks transcend national boundaries, they typically show themselves in national actions and markets. If I had to pick the biggest risks by region, I would say Italy in Europe and Japan in Asia.
Why Italy? Three reasons:
• As the third-largest country in the eurozone, after Germany and France, it’s big enough to matter—and can’t be bullied the way Greece was.
• Its banking system is in real trouble, and under EU regulations, the government can’t bail it out.
• For both those reasons, there is an escalating confrontation between Italy and Germany that could break up the eurozone.
We’ll discuss this more in another post, but for the moment, consider that Italy could become the new Greece (and in the reasonably near future). Regardless of whether the eurozone ultimately dissolves, another media storm is likely.
Why Japan? Although China gets the headlines, the government there has the political and economic tools to handle its problems. In Japan, that is increasingly in doubt.