COLUMN-Don't do the portfolio tango on Spanish concerns
By John Wasik
CHICAGO, April 13 (Reuters) - The rain in Spain will only cause you pain. So goes the latest worry about Spain's current financial woes for international investors. Yet that may not be the case if you're truly a global investor and look at the larger picture in the United States and abroad.
I'm not discounting that Spain's banks and bonds won't be pummeled more as the country limps through the aftermath of a housing bust and deleveraging. It's still a good idea to stay away from big Spanish banks such as Santander or BBVA and funds that hold Spanish-based and other beleaguered euro zone companies and bonds.
Spain once looked like the toreador of Europe with robust housing, financial and export growth. When I was last there in 2007, cranes dominated the skyline of Madrid, the heart of the old city was being spruced up and a new high-speed rail system linked major cities. The country appeared confident and buoyant.
Now the ghosts of housing developments and struggling banks haunt Spanish streets, which are full of protesters decrying austerity measures. As an investor, it will be hard to avert your eyes from this tragedy - it will continue to roil global markets - but you can find better economic news elsewhere.
But just because the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will continue to suffer doesn't mean you should abandon stocks in general. Unless a global recession surfaces or the European angst crosses the Atlantic, U.S. and emerging markets are promising long-term investments.
Some international market tensions were eased recently when an Italian bond auction went better than expected and Chinese growth expectations appeared to top estimates. I'm normally not terribly optimistic, but signs of recovery also continue to help U.S. markets.
Another drip of potentially positive news for world stock markets is that oil prices could be easing. Iran has agreed to renew talks with the permanent members of the United Nations Security Council: the United States, Russia, China, Britain and France.
The United States and other Western powers have been alarmed over Iran's stated development of nuclear weapons and threats to close the vital Straits of Hormuz, a major channel for oil supertankers. If Iran stays engaged, it could take even more pressure off of petroleum prices.
Lower energy prices generally help stocks in all energy-consuming countries, particularly those nations that need to import most of their oil and gas.
For emerging stock markets, consider the Vanguard Emerging Markets Index Fund, which gives you a sampling of more than 900 stocks from countries such as China, Brazil, Korea and Taiwan. The iShares Dow Jones US Index Fund offers broad coverage of U.S.-based stocks.
Also don't forget to offset the risk of owning stocks by owning income-oriented investments. The Vanguard Total Bond Market ETF owns a large piece of the U.S. bond market. The T. Rowe Price Emerging Markets Bond Fund samples developing countries. The SPDR Dow Jones Global Real Estate fund holds real estate investment trusts from all over the world.
All of which brings us to a classic cognitive dilemma: Our brains can't process all of this information about world markets and make spot decisions on winners and losers. So don't trip over your feet when watching the headlines. Invest in every asset category and adjust for the kind of risk you can afford to take. Set your own goals and stick to them. It's also better to tango with a partner you know.