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Global Challenges May Ruin Your Portfolio’s Summer

Every investor should understand the balance sheet of the companies he or she is invested in. But as recent world news has shown, sometimes outside events can seriously disrupt capital markets — and future returns.

Stock market investors who think they can avoid the international section of the newspaper – or, well, their favorite news website, since we are in the 21st century – better think again. Even far-off conflicts that seem to affect a small patch of sand on the other side of the world can have serious implications.

That applies to international stocks, yes, but also sometimes domestic blue-chips.

Let’s start with the obvious. Take the iShares MSCI Turkey ETF (TUR), which is off over 20% in two months thanks to political unrest. The Market Vectors Egypt ETF (EGPT) is down over 20% since January thanks to persistent protests there, too.

And let’s not forget about continued military action in Syria adding more fuel to the fire in the Middle East, as the perpetual threat of conflict with Iran. These risks provide even more trouble for investments in the region.

Why should you care if you don’t own the Egypt or Turkey ETF? Well, because a heck of a lot of oil still comes from the region. Crude oil prices are back above $100 a barrel, and have soared over 15% in a little under three months’ time.

That means higher jet fuel costs for airlines like Southwest (LUV) and logistics players like FedEx (FDX), as well as a hit to consumer spending now that folks are likely to pay more at the pump.

Get it now?

Beyond the Middle East there are still serious political issues in Europe, too. After its foreign minister resigned, Portugal saw its bond yields soar to almost 7.9%. European stocks across the board took a hit because of those old contagion fears about eurozone debt — because if Portugal can’t pay its bills, it may need another bailout … or it may default on debt and pass the pain on to investors.

Hopefully after the summer of 2012, when the S&P 500 shed almost 9% in about six weeks after EU bond yields soared, investors have learned the painful impact of financial woes across the Atlantic.

I could go on: There are protests in Brazil, there is a burgeoning financial crisis in China and there’s sure to be global fireworks elsewhere in the weeks ahead that we haven’t even thought about yet.

So pay attention to the news around the world in addition to the upcoming earnings season.

Like it or not, global headlines can — and do — move markets.

And it’s not always a move higher.

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Jeff Reeves is the editor of and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.

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