Globalization

Who Killed the Zeitgeist?

By, 06/18/2008

Story Highlights:

  • US Treasury Secretary Henry Paulson is meeting with the Chinese government to discuss a bilateral investment treaty.
  • A lot of folks fear foreign investment in the US; a formal accord could help ease worries.
  • Besides, foreign firms and sovereign wealth funds are nothing to fear—they are typically interested in investing passively.

____________________________________________________________________________________

If you believe some headlines, there's a giant "For Sale" sign in America's front yard. Dubai is thinking of buying the Chrysler building (rooftop tennis, anyone?)! Italians are gunning for the Flatiron building! What's next: Zimbabwe making an offer for the Statue of Liberty?

Plenty more folks fear foreign companies buying controlling stakes in US firms. The zeitgeist is with them—it's common to fear our national security is jeopardized by foreign firms or sovereign wealth funds (SWFs) investing in American companies. However, in other corners, cooler heads may be prevailing.

US, China Near Investment-Treaty Talks
By Tom Barkley, The Wall Street Journal
http://online.wsj.com/article/SB121366729020079687.html?mod=hps_asia_whats_news

Treasury Secretary Henry Paulson has been courting SWFs and other foreign investors for a while; indeed, in very recent history, SWFs were responsible for providing a number of banks the needed capital to stay liquid when credit became tight. Bilateral investment agreements with these countries are the next logical step. The treaty with China, in particular, would help increase investment both ways while addressing concerns on both sides. Copyright infringements and counterfeit goods? Check. China's artificial currency manipulation? Check. National security, China's trade surplus, and energy consumption? Check, check and check.

We're not saying an investment treaty will be a magical panacea, but it would increase transparency and remove roadblocks to increased investment. As we often say, increased foreign investment is good for them and good for us—often leading to increased wealth for both parties.

Don't expect everyone to climb on board—some just naturally assume increased foreign investment is bad. Foreign investors will make undue and possibly harmful demands, whereas US investors never do that—leaving management decisions to CEOs and corporate boards. Right?

Pensions Are Bigger Threat Than Foreign Wealth Funds
By Sean Silcoff, The National Post
http://www.nationalpost.com/opinion/columnists/story.html?id=658f52c9-e766-4824-9890-f58a22fd1815

Not really. Unlike SWFs, which have historically been passive investors, some state pensions have used their size to influence corporate boards. Whether their influence has been good or bad overall is not the question. The point is, when investing in America, most SWFs make a point of relinquishing voting rights and other influence that might normally come with a sizable investment.

There's certainly a sharp dichotomy between how American and foreign investors are viewed. The best way to level this playing field—and make the world wealthier overall while increasing transparency in all corners—is to continue easing entry for foreign investment in the US. Paulson's Chinese agreement would be a good start—let's kill the zeitgeist and give xenophobes something else to shout about!

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Click here to rate this article:



*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Subscribe

Get a weekly roundup of our market insights.Sign up for the MarketMinder email newsletter. Learn more.