When assessing competitive advantages between China and the U.S., one can compare population size, GDP, military strength. But the real advantage is the U.S. dollar and its role as a global reserve currency.
A combination of the size and stability of our economy and the advanced and (relatively) open and transparent financial markets make the U.S. one of the safest places in the world to conduct trade. Which strengthens the role of the U.S. dollar in the wider world.
The dollar is considered a safe store of value and a useful tool for transactions between less internationalized countries that can use their currency’s relative value to the dollar to conduct trade. This also gives America leverage in terms of sanctions, as we see on display with Russia, and supercharges U.S. economic policies’ impact on the global economy.
As you might expect, the euro, which is used by hundreds of millions of people across euro area countries, is the second-most traded currency and the yen is the third-most exchanged currency in the world, and by far the most used Asian currency.
But America should not take dominance of the dollar for granted, for history shows that this edge can end abruptly if the world loses confidence in a country.
Too much debt and economic or political instability can open the door for competitors to move in. And there is constantly chatter of China making a dramatic move, such as somehow backing its currency with gold. Or launching a killer digital currency backed by gold.
This begs the question as how to hedge the U.S. dollar and market volatility and risk right now? Let me recommend two countries to invest in right now.
Switzerland and Singapore
For starters, Switzerland is home to some of the largest companies in Europe in terms of market value, such as UBS (UBS), Nestlé (NSRGY), and Novartis (NVS).
Switzerland also has the highest per-capita income in the world. While only 137 miles by 216 miles in size, with a population of 7.2 million, Switzerland packs a punch and is a financial and multinational powerhouse.
Additionally, the Swiss franc is backed by ample gold reserves, fiscal discipline, a trade surplus and very little foreign debt. Outward looking, Switzerland has 40% of its gross domestic product attributed to exports. Switzerland is the third-largest financial center in the world after New York and London.
It is also home to world-beating pharmaceutical, engineering and food companies and enjoys a stable government, vibrant democracy and a reputation as an asset haven in times of stress (like now). The Swiss have had a functioning democracy for 500 years and actually has a fairly weak central government, with a legislature that meets for only two weeks, four times a year. Voters have actually defeated a referendum that would have implemented a shorter workweek and longer vacations.
Switzerland is home to a number of blue-chip global multinational companies with entrenched brand names, dominant market shares, proven management teams, solid free cash flows and double-digit growth potential.
The iShares Switzerland (EWL) is a wonderful way to gain exposure to a basket of Switzerland’s leading multinationals and has a low expense ratio. My favorite stock pick is Nestlé (NSRGY). This consumer giant has a stock buyback program, a focus on growth in emerging consumer markets and a rising dividend. ABB (ABB) is a terrific infrastructure play and has been on a tear, winning power and automation technology contacts all over the world.
The Switzerland of Asia is Singapore. And the best ways to invest in Singapore are via the iShares Singapore (EWS) ETF or arguably Asia’s strongest bank, DBS Group Holdings (DBSDY). This is a bit higher risk and more of a value play than Switzerland since the Singapore economy has slowed a bit but its financial discipline and political stability is still first class.
As a hedge on the potential weakening of the U.S. dollar and as a haven from the financial storm rattling the windows of the world, you can’t go wrong investing in these two under-the-radar countries.
Are there any other countries to invest in that you would recommend right now?