Its been no secret that a good way of outperforming the market, generally speaking, has been to look at overseas investments. That might be even more true now, than in the past, as the developed economies are expected to lag the emerging ones, in recovering from the global "slow down".
But for some reason, some people just aren't "comfortable" with buying foreign securities. Even on Seeking Alpha, which has an arguably more financially aware readership than the general populace, I've seen people commenting on an aversion to investing in foreign securities. The generally accepted panacea for those folks has been to invest in US-based multination firms, such as Caterpillar (NYSE:CAT), for example.
But as a front page article in the February 2 edition of the Financial Times notes, the foreign "gravy train" for US multinationals might be coming to an end, if the President gets his way. As part of Obama's proposed budget plan, the administration seeks to make some very substantial changes in the tax structure under which such firms currently operate. The transference of brands and patents to overseas affiliates in tax advantaged jurisdictions would be hit with a surcharge on the "excess returns" generated by those assets. I'm assuming that "excess returns" would be computed by computing what taxes would have been paid in the US, if the assets had NOT been transferred, subtracting what taxes WERE paid under the local regime, and applying the surcharge against that difference.
Another change from current practice would be prohibiting firms that borrow money to invest in overseas operations from taking an immediate tax deduction on the interest paid on such loans.
Of course, what a sitting President "wants" may not be what Congress is willing to "give", especially under conditions such as currently exist, with the recent loss of the Democratic super majority. Even if that super majority still existed, not all of the Democrats (most notably, Max Bacus -D, chairman of the Senate Finance Committee) are enthralled with the proposal. Despite that, it seems likely that some sort of changes are coming, ranging from "bad" to "worse".
The pressure is on for Obama to make some sort of headway against looming deficits, and with proposed budget cuts varying between "slim" and "none", the only other option is to increase revenues. Anything smacking of a middle class tax increase would likely result in "torches and pitchforks" in D.C., so what better target for a populist President than the #2 financial "bogey man", multinational firms? (The #1 slot seems to be currently occupied by a tie, between "Banks Too Big To Fail", and hedge funds).
Like it, or not, it appears investors will have to venture overseas with their investments, if they wish to reap the benefits of the developing markets.
Source: Financial Times
Disclosure: No positions