International markets were supposed to be the place to make money in 2010, but so far have failed to live up to their billing.
From credit issues in Greece, Spain and Ireland to inflation fears in China, investors have been selling rather than buying when it comes to emerging and developed markets.
Despite a rough start, the US stock market is outperforming its global counterparts, with a loss of about 2 percent so far this year compared to a 3 percent drop in the rest of the world's markets.
But does the early turmoil mean that the multinational story is dead?
"The long-term prospects, probably even the intermediate prospects, for emerging countries in the stock markets are excellent," says Jordan Kimmel, market strategist with National Securities in New York. "As always, you have to be selective and not paint it all with the same brush."
While strategists are taking a more cautious view on international investing this year, they still believe the global growth story remains intact but will require vigilance.
Five ideas to consider:
1. It's a Stock-Picker's Market
As Kimmel points out, investors expecting to take broad exposure in foreign markets then sit back and await the returns will be disappointed.
There will be pockets of strength, mainly among individual companies rather than sectors or broad country plays through exchange-traded funds.
"This is going to be a year for specific stocks with specific stories. It's not just a liquidity-driven market anymore," says Quincy Krosby, market strategist with Prudential Financial in Newark, N.J. "Overall this should be a year with very specific fundamentals and doing your homework."
Investors need to comb the international landscape for companies with strong corporate governance and stocks that pay handsome dividends.
"You can't afford to overpay for any business anywhere in the world," says Alan Wilson, president of Talon Asset Management in Chicago. "It will come back to haunt you. You can't be mesmerized by growth rates in China, Brazil and India and think you can pay 30 times earnings. You will lose money."
Wilson looks at technology companies such as Cisco and EMC that fit the bill for multinationals poised for growth.
2. Take a Long-Term View
While buy-and-hold strategies have lost popularity with the volatility of the US markets, strategists encourage those who want to go overseas to take a more traditional three- to five-year view.
Patience will guide investors through the current rough spot for foreign markets, which may have become overbought in light of the analyst fanfare, and pay off later.
"Longer-term, emerging markets probably should play an important role in any global investor's portfolio. But like anything else you've got to pick your spots," says Curt Lyman, managing director at HighTower Advisors in Chicago. "By the time the popular press and a lot of the commentators are touting something, the cat's already out of the bag and that's probably what happened in this particular case."
Foreign markets could stumble around for the first quarter of two this year but are likely to regain footing thereafter, analysts say.
"It comes with increased volatility, and therefore entrance points are important," Kimmel says. "If you're an aggressive trader very likely a lot of people would get stopped out of emerging markets on a pullback here. It's long-term sound and I very much believe it's the engine to world growth."
For the Short-Term, Play it Safe
3. Short-Term Retreat Isn't a Bad Idea
Despite the long-term value in world markets, investors who can be more nimble with their portfolios may want to take some money off the table globally and wait for a cheaper buying opportunity.
"I felt going into this year that the US market would actually outperform emerging markets," says Uri Landesman, head of global growth strategies at ING Investment Management. "China, which is the most important emerging market, is going to be a problem the first half of the year."
While the year hasn't exactly gotten off to a roaring start on the US market, strategists are feeling more comfortable there for the time being.
"We have suggested taking money off the table in emerging markets on the whole," Krosby says. "There are certainly emerging markets that we think will pull away from the pack, but investors should allocate more money to the United States."
4. Watch Currency Movements
At the first true signs of global growth, central banks are likely to start racing towards raising rates and the bolstering of their currencies.
While low global rates have been necessary to stem deflation, countries promoting long-term growth will not be able to do so on the back of weak currencies.
Yet Australia, one of the first to raise rates in 2009, surprised earlier this week by holding rates steady. Analysts were divided as to whether the move was a signal to other central banks that it was too early to raise global rates, or if it was an opportunity for institutions like the Federal Reserve to get ahead of the curve and start backing the dollar, which gained initially after the Australian move but has edged lower for the week.
The fate of international currency is likely to be a significant factor in determining which economies are poised for growth.
"If you look at the value of the dollar versus the pound and the yen, we're losing ground year after year," Lyman says. "We as citizens should be taking note of that...At some point we've got to be concerned, especially when we are a net-debtor nation and reliant to the extent that we are on other governments and foreign entities to buy that deficit in order to support our deficit.
"Near-term it's probably OK because everybody is in the same boat. Longer-term as a nation we've got to be able to address this issue."
5. Think Locally, Invest Globally
Large-cap US- and foreign-based companies with strong international exposure have been some of the biggest winners in this earnings season, and that quality theme is likely to continue.
"Since the first quarter of 2009 we deliberately began to emphasize companies that have the bulk of their earnings, the bulk of their growth outside the United States," Talon's Wilson says. "Many of these foreign-based companies do not have our debt levels and they do not have our GDP growth challenges."
Wilson says his company's strategy is based on company-specific business models, a theme that fits in with the necessity of being particular about firms either based overseas or with strong multinational exposure.
"On a secular basis emerging markets will be the most important theme for investors," Krosby says. "With that said, there will be temporary concerns, there will be pullbacks."