It’s Time to Put the Brakes on the Mad Drive to Buy Foreign Stocks, Analysts Say

In the midst of a wild, yearlong scramble to invest in foreign stocks, at least a few Wall Streeters have been having second thoughts.

In the last few weeks, they have stepped back from the bidding for stocks in financial centers from Hong Kong to London. The change of heart appears to have contributed significantly to a selloff that has hit several markets around the world.

“Over the last few weeks, we have become increasingly wary,” said David Roche, global strategist at Morgan Stanley & Co., a Wall Street firm that has long been a leading force in the internationalization of U.S. investments.

Morgan Stanley has begun under-weighting stocks in its model portfolio of mixed assets from around the world.

This kind of caution has been felt in dramatic ways. In Tokyo, for instance, the Nikkei-225 average fell below 17,000 from above 21,000 between early September and last week, wiping out all gains made earlier in the year.

The high-flying Hong Kong market’s Hang Seng index tumbled more than 7% in six trading days, after reaching a record high Nov. 15. British stocks, meanwhile, suffered a 4% setback from their late-October peak.

Richard Weiss, co-manager of the Milwaukee-based Strong Opportunity and Strong Common Stock Funds, reported a very recent switch in his approach.

After building up the position of foreign stocks, Weiss said he recently started to cut back.

“I don’t think it’s a safe bet that marginal holdings overseas will do better” than U.S. stocks, he said. “A lot of what was cheap isn’t cheap anymore.”