Pros and Cons of Global Investment

Investing in International companies is gaining popularity these days. But before you start investing, let us first discuss the benefits as well as the risks involved.

Pros:

a. Diversification
Markets of different countries have low correlation between them. When you spread out your investments across geographies, it provides diversification to your portfolio. A diversified portfolio can provide balanced returns during the volatile markets. Hence, diversification is the most important benefit of global investing.

Many of the US-listed companies have global revenues. Over 40% of the revenues of the S&P500 companies come from outside the US. By investing in the United States of America itself, you can build a globally diversified portfolio.

b. Access to giant global companies
Some of the global giant companies like Facebook, Apple, Hyundai, Samsung, LG, Tesla, Microsoft that are doing great business and earning huge profits from India but not listed in Indian Stock Exchanges. Global investing enables you to access opportunities that are not present domestically.

You can access multiple geographies through ETFs, Global Mutual Fund Schemes, FOF Schemes etc. through India.

c. Currency Appreciation
Investing overseas exposes you to currency appreciation (or depreciation). For example, the USD has been appreciating versus the Indian Rupee over the last few years.

Emerging markets’ currencies depreciate over the longer term. Interest rates in domestic savings accounts are at a low of 3-4 percent on average.

By investing globally, portfolios have generally had the dual benefit of better markets and appreciating currencies.

d. Low Transaction Costs
The cost of investing in global markets have now become inexpensive with more AMCs coming up with international Mutual Fund schemes which has eliminated the additional costs like Foreign Exchange conversion charges, transfer fees, and annual maintenance etc. Global Investing is now as affordable and hassle-free as investing in Indian companies.

Points of Concern:

a. Global Market Volatility
This is an obvious thing that volatility in Global markets can affect your investments too. As an individual it is not possible to keep track on political and economic change of each country, its will be a good idea to hire a financial distributor who can monitor global scenario on your behalf & inform you as and when required.

b. Political Risk
While investing, you should also consider the geopolitical environment of the country. Political events affect the domestic markets of the country and may lead to volatility.

In developing markets, government and policy decisions could hurt even the most prominent companies.

Conclusion:

International investing has become the need of the hour to achieve strong portfolio diversification. While the benefits are lucrative, you must pay attention to the risks as well. There is a lot of information available online to measure the risks and ensure your portfolio’s right mix.