Why Investing In Global Markets Is Important

The importance of financial markets for achieving long-term wealth accumulation is widely recognised by the investor community. Asset valuation tends to gain over the long run, despite the fact that markets are by their very nature turbulent in the short to medium term. Furthermore, there are ways to mitigate the volatility and risks related to investing in the markets as you start your investment journey through financial market investments.

Diversification is one of the tools used to address these risks. Nevertheless, simply investing within the same economy is insufficient. Allocating a portion of your portfolio to foreign equities along with Indian equities gives it the essential diversification.  

If an investor keeps all his allocations in one country/economy, their risks & opportunities are also concentrated in a single place. But, if the investments are made across geographies, varied monetary policies & market cycles provide different growth opportunities and diversified risk to the investors. For these reasons, diversifying one's investments geographically is now considered a vital element of building a robust portfolio and now Indian investors have the opportunity to do so.

Note: Dow Jones has delivered over 57% in the last 5 years

Source: Google Finance

Note: S&P has delivered over 77% in the last 5 years

Source: Google Finance

The global stock market also provides enormous opportunities for investors, ranging from individual equities to exchange-traded funds across themes. The largest international blue-chip stocks are now available to Indian investors.

Following are the tools using which one can invest in foreign stocks-

1) Global Funds created by Indian fund houses with foreign tie-ups

2) Direct Investment with a foreign broker that has a presence in India

Note: Using the above tools, one can invest in stocks, ETFs and a few other asset classes

Here Are A Few Reasons As To Why One Should Look Into Investing In The International Markets

 Participate in the global growth story

With access to international markets, you have the option of investing into the leaders & innovators across the globe. This helps you participate in the growth story of other leading economies – e.g. the US is home to large giants like Meta, Amazon, Apple, Alphabet. To simply gauge the size of the US market which is the world’s largest stock market – US stock market is almost 16x of the Indian stock market. And Apple Inc. (which touched a $3 trillion market cap in early 2022, on its own it is bigger than the 5^th largest economy in the world!

Note: Apple has generated over 500% just in the last 8 years

Source: https://markets.businessinsider.com/stocks/aapl-stock#instrument-detail-news

Rupee Depreciation

Rupee has historically depreciated almost 2% - 3% per annum against leading currencies like the USD and EUR in the past 10 years. This means any Indian investor investing in foreign securities denominated in these currencies, would have seen his investment appreciated by 2% - 3% per annum merely due to the currency movement post conversion to Rupee.

Rupee Depreciation Chart

Source: USD INR | Chart | US-Dollar - Indian Rupee (businessinsider.com)

Diversification

Since the winners across the geographies keep on changing and the underlying factors affecting various regions may be distinct from each other, there is a strong reason for diversifying one’s portfolio across economies. So, even if the economy witnesses a decline, the value of your portfolio will be affected only to a limited extent.

Building up a foreign currency corpus

If you’re looking at saving up global currency like US Dollars for your children’s education, foreign travel or other offshore investments including but not limited to real estate, global investing helps you create that corpus in the foreign currency and grow it efficiently.

Investor Protection

Developed economies like the US and UK have strict customer protection laws & agencies in place. Agencies like the U.S. Securities and Exchange Commission and the UK Financial Services Authority protect investors against any wrongdoings against the investors, if any.

Fractional shares

One unique aspect of US bourses is it allows fractional ownership of shares. Fractional shares let investors purchase select stocks based on a dollar amount they want, rather than the price of a whole share. This makes investing globally affordable. For example, you can own a fraction of Tesla shares for just $1, where each share costs almost $900 which is around Rs. 68,000. Hence the minimum ticket size for taking an exposure to US securities is low.

Conclusion

While investors do tend to have a bias to invest in their home countries, it is now become imperative for any investor to create a portfolio with a global view. This allows them to reap the benefits of investing abroad such as risk diversification, generating income in a foreign currency etc.

Furthermore, there are certain themes like Artificial Intelligence, semi-conductor and precious metal mining, etc. which are not available in markets like India but can be accessed through others. And, with the ever increasing information exchange and technological advancements, the access to global markets has also become much more convenient for investors.