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International Investing – Overseas Cash

April 24, 2014

The world is a big place – there are over 190 countries and 7 billion people in the world, which really boggles the mind if you sit down and think about it. In addition to being an interesting intellectual exercise, this fact can also have broad implications for your investments and your financial future. It is easy to stay focused on U.S. firms, news, and events during the day-to-day grind, but it is always important to be aware of your surroundings – especially when it comes to your investments. With that in mind, this series of articles will focus on countries and investment opportunities outside the United States that you might not usually hear about.

As always, be sure to consult a financial services professional familiar with both the potential investment and your unique financial situation before embarking on any investment program.

Overseas Cash

Since the financial crisis rocked the international business scene, as well as redefining investment strategies for many investors, dividends, buybacks, and other financial engineering tools have been used to great effect to try and entice investors back into the market. All of these actions, however, require cash, and much has been made of the dwindling percentage of cash directed toward capital expenditures that are actually going to capital assets (plant, property & equipment). That conversation is worthy of an entire post (or even book) in and of itself, so we are focusing on a slightly differently angle of the cash story.

Many of the world’s largest firms, particularly U.S. based firms, generate large percentages of their revenues and earnings from overseas operations. The percentage of the S&P firms that generate over 50% of earnings from overseas operations continues to rise year over year, and this has led to another interesting development. Cash holding overseas continue to increase — as of March 31, 2014 cash holdings held overseas by U.S. firms hit nearly $1 trillion.

So what does this mean for international investing?

What this means is that there is a growing potential for U.S. to deploy these growing cash balances in acquisitions, mergers, and other such deals with overseas firms. In order to avoid paying U.S. taxes these funds have remained overseas, but it may be becoming time for these cash stashes to be deployed in strategic business decisions. Investors can gain increased international exposure through deals like the one announced yesterday; G.E. is rumored to be in talks to purchase French power firm Alstom.

Interesting indeed.

Happy Reading!

http://online.wsj.com/news/articles/SB10001424052702304518704579520881168418124?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304518704579520881168418124.html

http://www.forbes.com/companies/general-electric/
http://www.bloomberg.com/news/2014-04-24/ge-s-57-billion-cash-overseas-said-to-fuel-alstom-deal.html

http://www.ft.com/intl/cms/s/0/a81b4f4c-b8ee-11e3-a189-00144feabdc0.html#axzz2zjc54ceW

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