While the UK and the Eurozone continue to fear deflation and another downturn, life in the US has never been better. Certainly, that’s not to say that the US faces no challenges, but rather that it has fully emerged from the financial crisis and is now posting impressive GDP, jobs and earnings numbers. As such, it could be a great time to buy a number of US companies to go alongside your exposure to the FTSE All-Share.
Interest Rate Rise
In fact, the US economy is performing so well that the Federal Reserve seems likely to begin the process of raising interest rates imminently. While the case for an increase in UK interest rates is fairly straightforward to make, owing to the excellent performance of the UK economy at the present time, the threat of deflation and the situation in the Eurozone is holding policymakers back. In the US, however, confidence is high and it can afford to raise interest rates without fear of an investor backlash.
Of course, a rising interest rate normally has the effect of causing a country’s currency to appreciate relative to other currencies. So, if the US does raise rates this year then the dollar is likely to continue the recent run that has seen it strengthen significantly against the pound. This would be good news for UK-based investors who buy US shares, since it will mean that their profits are given something of a turbo boost when converted from dollars to pounds.
Lacking Exposure
In addition, the US has far less exposure to two potential problems in 2015 and beyond. Russia and the Eurozone continue to hold back investor sentiment in the UK but, with the US having comparatively little trade with Russia (compared to the EU) and also being less dependent upon the Eurozone for trade (compared to the UK), it should be able to overcome any further problems with regards to both of those regions. As such, its stock market could rise at a faster rate than the FTSE 100 over the medium term.
Record Highs
Furthermore, US investors do not seem to fear record highs. For example, both the Dow and S&P 500 hit new all-time highs in recent months, while the FTSE 100 only marginally surpassed its high from fifteen years earlier before scampering back to ‘safer’ levels of around 6,700 points. In other words, US stock markets do not appear to have a fear of moving considerably higher if the outlook warrants it, while in the UK the FTSE 100 could be held back indefinitely by flawed investor psychology which believes that 7,000 points is somehow expensive.
The Ease Of Buying US Shares
While buying US shares is more difficult than buying UK ones, the time spent doing so seems to be well-worth it. You’ll need to complete a W-8Ben form which can be obtained through your sharedealing provider in the UK, who can also facilitate US share transactions at very competitive rates. There may also be tax considerations depending upon your personal circumstances but, due to the prospects of record highs, a lack of exposure to challenging regions, the promise of improving earnings data and a first-mover advantage on interest rates, buying US shares seems to be an obvious way to boost your returns.
