David Sterman

It's time to stress-test all of the companies in your portfolio. It's crucial to determine their geographic exposure right now, because a handful of major economies are possibly headed for a long-term unwinding.

Each of these countries is beset by stunningly-large budget deficits, unfavorable demographics, a too-strong currency and weakening consumer demand. Before things get better (and they will) they may get a lot worse during the next few years. A portfolio with exposure to these economies may underperform the broader market.

I'm talking about four of the 12 largest economies in the world, which accounted for a combined $11 trillion in economic activity last year. That's 35 times larger than Greece, to put things in perspective. Simply put, U.S. companies with exposure to these economies will need to shrink their operations in these trouble spots, lest they see spiraling losses in coming years.

The four countries in question: Japan (the world's No. 3 economy), the U.K. (No. 6), Italy (No. 8), and Spain (No. 12). Let's take a closer look.

1. Japan
Roughly 18 months, I laid out the sobering challenges this country faces.

As this chart shows, the yen has rallied against the dollar, from $1.20 to a recent $0.81 during the past five years (meaning, one yen was worth $1.20, and is now worth $0.80).

David Sterman

David Sterman has worked as an investment analyst for nearly two decades. He is currently an analyst for StreetAuthority.com

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