Unnerved by severe losses in Asian markets, U.S. investors are fleeing foreign stock mutual funds at the fastest pace since 1990, new data show.
Perhaps more important, the plunge in Asian stock values this year, which now is infecting other markets worldwide, has forced many investment advisors to revive an old debate: Is foreign investing even worth the trouble and risk for Americans, many of whom have embraced the concept only in recent years?
Encouraged by Wall Street's admonishments about the need for global portfolio diversification, investors have since 1992 rushed into mutual funds that invest specifically in foreign issues.
Many 401(k) retirement savings plans have added a bevy of foreign-fund options in the 1990s, making it easy for even the smallest investors to send their retirement monies to far-off lands.
Such globe-hopping money managers as Mark Mobius, an investment manager for the Templeton mutual funds, have become well-known personalities in the financial media.
Yet even before the Asian market debacle, the past decade "hasn't been wildly in favor of foreign investing," concedes John Markese, president of the American Assn. of Individual Investors in Chicago.
In recent weeks, some individual investors have decided that owning foreign stocks isn't for them, after all.
International stock mutual funds have suffered net redemptions of $2.2 billion in October, according to Trim Tabs Financial Services of Santa Rosa, Calif., a fund tracking service. That marks the first time since December 1990--immediately before the Persian Gulf War--that money has fled international funds over a full one-month period, Trim Tabs said.
The redemptions in foreign funds can clearly be traced to Asia's economic and market woes, which began with Thailand's devaluation of its currency on July 2 and have since ballooned into a regionwide crisis.
Thailand's stock market has lost a stunning 46% of its value year-to-date, and the decline is far worse in U.S. dollar terms because of the currency devaluation: American investors in Thai stocks have lost two-thirds of their money, on average.
Likewise, in dollar terms Malaysia's market is down 61% this year, and the Indonesian market has crashed by 49%.
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By contrast, even with this week's turmoil, U.S. blue-chip stock indexes still are up 22% year-to-date.
