| |
| |
 |
 |
Volume 5 | |
|
|
|
| |
India today is very different from its yesteryears. From the days of driving only Ambassador and Maruti cars, Bajaj scooters and other limited Indian brands, today’s Indian is spoilt for choice. There are host of International brands comprising umpteen models available in the passenger car segment. Similarly, one needs to choose from multiple models manufactured by foreign players in segments spanning telecom, consumer durables, FMCG and several other categories by International companies. The dramatic increase in choice is not only a result of the fast growing consumption demand drawing International players but also the acceptability of foreign goods among Indian consumers.
Even as Indians enthusiastically consume foreign goods, the same cannot be said when it comes to investing in foreign funds. A casual look at an Indian investor’s portfolio reveals that we remain heavily skewed towards purchasing Indian stocks/ mutual funds. While one may argue that India deserves this treatment being among the most promising nations at this point of time, a closer look at the recent trends followed by a glance at the basic principles of investing puts a different picture across.
On a YTD basis Jan - Sep, 2011, India’s benchmark index BSE Sensex is - 20% this year, a sharper decline compared to developed economies (US’s Dow Jones: -5.74%; UK’s FTSE: -13.08%) as well as other emerging markets (China’s Shanghai Composite: -15.98%, Korea’s KOSPI: -13.72%). This clearly conveys that relying too much on domestic investments may not augur well for an investor especially considering the fact that markets worldwide are lot more coupled and international events have a far greater impact on domestic market performance. |
| |
The above reasoning gains weight if one looks at historical performance of markets across
the globe. |
| |
 |
| |
As one can notice from the table, while China’s Shanghai composite index was the best performer in 2007, it ended up at the bottom in 2008. Similarly, India’s Sensex which was second best in 2007 managed to stay above only China’s index in 2008. More recently, Argentina’s index which topped the charts in 2009 and 2010, has dropped to the 11th slot this year. As is with country indices, one will witness a similar phenomenon when it comes to sectors and asset classes.
In this scenario, it is extremely critical for an investor to follow the principle of diversification by investing across sectors, asset classes as well as countries.
Another factor that supports this reasoning is that different sectors/ asset classes/ countries present different levels of growth potential at any point of time. This is because of host of factors which may include demographic profile, consumption potential, domestic growth objectives etc. It makes sense for prudent investors to pursue investing in countries which are poised to show higher level of growth than investing in the laggards to be. |
| How to invest? |
Having arrived at the conclusion that geographic spread is essential for the welfare of one’s investment portfolio; the next step is to decide on specific investment vehicles that a retail investor can choose from.
Considering the expertise and knowledge that one needs to gain to be able to identify global companies, it is best if investors entrust the task of choosing promising countries and within them high growth sectors/ companies to expert fund managers. As such, the mutual fund route is an ideal investment route for any retail investor. Today, an Indian investor can choose from a plethora of International funds launched by Indian fund houses. |
 |
|
| As such, if one is interested to invest in China’s high growth economy, he can consider Mirae Asset China Advantage Fund, an open ended fund of funds scheme that seeks to benefit from the growth potential of companies domiciled in or having their area of primary activity in China and Hong Kong. Similarly, if one is convinced about the consumption potential of India and China, one can evaluate Mirae Asset India-China Consumption Fund, an open ended equity oriented scheme that focuses on benefiting from the consumption led demand that is primarily driving growth in India and China, two of the world’s fastest growing emerging market economies. The fund seeks to primarily invest up to 65% in India equities while taking exposure of 10 - 25% in Chinese equities. |
| |
| Arriving at the optimal mix of India-Global investments in your portfolio |
The optimal mix for offshore exposure is dependent on your particular risk profile. The chart below highlights different data points showing the risk return equation at different levels of domestic-international investments.
As evident, an allocation of 70% onshore and 30% offshore is an optimal mix, however you need to remember that this will be influenced by your individual risk profile. |
| |
 |
| |
Downside of International investing
Having listed the why and how of investing internationally, one needs to also consider the risks involved. |
| |
 |
Economic and Political Risk:Political actions, such as coups, civil unrest, or even labour policy changes in a specific country can unsettle its financial markets |
| |
|
|
Currency Risk: When investing abroad, you are exposed to the currency in which your foreign investments are domiciled. The value of currencies can change substantially over time, either adding to or reducing your returns. It is thus important to consider the impact currency movements may have on your investment. |
|
| |
|
| |
|
|
| |
|
|
| |
|
| |
|
 |
 |
 |
|
