Global Capital on the Run

Around the world, stock markets are in a sharp decline, and analysts are trying to determine if herd mentality is at work or if the trend reveals other risks. At the same time, more investors venture beyond national borders in search of opportunities. Thirty years ago, foreign investing was tightly restricted, with the US as an exception to the rule, although the wealthiest of citizens always evaded such rules. Eventually, France and other nations lifted controls, rushing to not fall behind with foreign investments. In theory, liberalization offers benefits to all, notes Robert J. Samuelson, but it also carries two major risks: Global investing leads to big trade imbalances and financial crises now carry a global, not regional, impact. Some analysts suggest the herding instinct could have some benefit, quickly puncturing bubbles created by speculation and excessive attention on certain sectors, before they get too big. Likewise, higher interest rates could slow speculation and reckless investing. Any hint of panic spreads rapidly, Samuelson notes, and diminishes confidence. Global financial markets are new and still evolving – and individual investors must understand that even the world’s top analysts are working to understand the trends. – YaleGlobal