Rich investors are pulling capital out of economically troubled Spain at an accelerated clip: On a three-month rolling basis, investment and portfolio outflows were 52.3 percent of the country's gross domestic product, according to Jens Nordvig, global head of G10 FX strategy at the investment bank Nomura. Compare that with Italy, another European Union country in crisis, where outflows have accounted for about 5 percent of that country's GDP.
The massive migration of capital is placing Spain center stage in the European economic crisis and is leading some to fear that Spain will join Greece in requiring a bailout from the European Central Bank.
Foreign sellers are also pulling out of Spanish securities, leaving many U.S. investors wondering if they should stay or go. It's true that the entire euro zone is in a debt crisis, but you won't find answers by comparing one country with another. Spain, unlike Greece, for example, still has a functioning bond market, a larger, more diverse economy and relatively low levels of debt. More analysts fear a rising tide of investor panic than anything else. Investor confidence, or lack of it, is always the great unknown when it comes to predicting market outcomes.
Some investors with a high risk tolerance, a long investment time horizon and a belief that the region has the economic tools to overcome its troubles will ride out the crisis, or even buy while securities are cheap. Just make sure you know all the pros and cons before investing.
The most successful investment strategies don't succumb to emotion. Entering and exiting the market, or striving for a portfolio of sectors that are always positive is a losing game. Investors have seen the volatility in the U.S. markets over the past decade and the smart ones will design an asset allocation that includes global strategies to remove some volatility in the portfolio and aim for overall growth over time.
How do you feel about investing in Spain, and Europe as a whole?
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