This week saw a slew of ‘better’ news hit the markets, from Gold prices to renewed optimism out of Asia and Warren Buffett, the Oracle of Omaha, pointing to further upside in the US housing market. But however we look at it, there is plenty that could go wrong in today’s economic climate and Australia brings little to the party.

The Australia stock market has made a feeble attempt at recovery but the outlook on natural resources remains weak. Sustained weakness in materials prices continue to adversely affect all sectors of the economy and a strong focus on international diversification remains a wise strategy for all investors in the current climate.

Major miners are still selling off assets to maintain the cash-laden balance sheets they have become used to in recent years. Just this week, BHP offloaded yet another of its many projects, this time taking the axe to its EKATI Diamond mine and marketing operations, freeing up an estimated $500 million dollars. Rio Tinto also has its diamond operations up for sale. In recent years, the Australian economy has become increasingly reliant on mining operations. This brings leverage to specific – and favourable - market conditions, similar to Japan’s reliance on car manufacturing and technology. But this lack of diversity also leverages the whole economy to certain external forces, which, in our case, is China. The way Australia has been run breaks the primary rule of any quality share portfolio - never place all your eggs in one basket. Successful nations such as Singapore and Norway practice effective economic diversification and both have weathered the global financial storm well.

Looking further afield, this week saw mixed performance amidst leadership changes in China and the US. Changes in leadership always bring uncertainty to investors and so the re-appointment of Vice President Xi Jinping and Vice Premier Li Keqiang to China’s Politburo Standing Committee will likely bring much needed calm as the country faces economic slowdown and employment uncertainty.

The same can be said for America. The re-election of President Obama didn’t satisfy markets in the short-term but the removal of political uncertainty means investors can focus on more pressing issues, such as the looming ‘fiscal cliff’. If they’re not careful, America could back themselves over the edge. Yet there is something to be said about a ‘realised’ economic situation. The US economy has been the full 12-rounds and many sectors have taken their licks and survived. Just this week Warren Buffet’s Chief Executive of the Johns Manville building-products unit, Mary Rhinehart said she believed “…we are really at the start of something good.” The US housing market seems to have bottomed out and new housing starts continue to show promise. Major Investment firm Blackstone Group is also showing confidence and has snapped up $1.5 billion in foreclosed homes this year.

A housing recovery brings promise to other aspects of the US economy, including stocks. Companies leveraged to what could be a 3-5 year boom in US house prices and a regeneration of foreclosed inventory will likely be near-term outperformers.

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Global Depression? The Home Depot (NYSE: HD) is an American retailer of home improvement and construction products and services, which has doubled in value in the past 12-months.

Housing-related stocks such as Home Depot will likely continue their impressive climb as improving demand eats away at existing stockpiles of supply and the government gets its housing market, employment and business balance sheets back in order.

In view of America’s housing-led recovery, maybe it’s time to review our own portfolios and look for what could drive Australian demand over the next three to five years. It’s safe to assume that most Australian share portfolios - like the overall economy - are heavily weighted to the mining industry but there is a plethora of companies offering equally impressive growth prospects as well as dividends. Then there is international exposure. optionsXpress allows investors to broaden their portfolio beyond what is on offer in Australia.

Both domestic and international diversification may be just what the doctor ordered for your 2013 portfolio.

Stay Ahead Of the Game,

Lachlan McPherson