By S K Hozefa
Investing in global stock markets has become increasingly popular in recent years, as Indian investors look for new opportunities to diversify their portfolios and capitalize on the growth potential of different regions and sectors. The trend of global investing has been driven by several factors, including the increasing interconnectedness of the world’s economies, the rise of technology and e-commerce, payment mechanisms, Online Digital discount brokers, Online KYC, and the growing number of megatrends changing companies that are listed on multiple stock exchanges.
Diversifying Country Risk and seeking Alpha across geographies
One of the key benefits of global investing is the opportunity to access a wider range of investment options, seek higher returns across geographies, and spread your risk across different markets and sectors. This can help to reduce your overall investment risk and to capture higher returns over the long term. Additionally, as different markets tend to perform differently depending on global economic conditions, global investing can help to smooth out the difficulties of any one market. For example, Since the Global Financial Crisis (GFC) of 2008, the Indian stock market has had the best performance in only 4 out of 12 calendar years up to 2020 and the worst performance in 3 out of 12 calendar years. In comparison, the U.S. stock market has had the best performance in 6 out of 12 calendar years and the worst performance in 3 out of 12 calendar years. This illustrates that the top-performing markets tend to change frequently and hence the need to diversify.
Also Read: Don’t take the plunge blindly: Important factors to consider before investing in US stock market
Depreciation of INR adds to the portfolio return
Depreciation of the Indian Rupee (INR) can add to the returns of an investor’s portfolio when investing in global markets. A weaker INR relative to other currencies means that the value of foreign investments in a portfolio increases when converted back to INR. For example, in the last 5 years, INR has depreciated about 27% against USD. This means Indian investors would have made an additional 27% in 5 years in their US Portfolios in INR terms.
Also Read: Spotting key events and indicators to stay ahead of the curve as an investor
Opportunity to invest in themes and mega-trends outside of India’s market
Mega-trends are powerful, transformative forces that can change the direction of the global economy by altering societal priorities, promoting innovation, and redefining business models. They have a significant impact on not just our daily lives and spending habits, but also on government policies and corporate strategies. As global investors look to capitalize on these trends, popular themes such as robotics and artificial intelligence, electric vehicles, cyber security, industrial automation, cloud computing, e-commerce, and data centers are becoming increasingly prominent in investment portfolios. These themes are expected to shape the future and are widely considered the driving force behind future growth.
Global ETF’s
Investing in global stock markets can be done in several ways, including through exchange-traded funds (ETFs), mutual funds, and individual stocks. Exchange-traded funds (ETFs) are a preferred method for gaining foreign exposure because of their simplicity and transparency. In globally developed markets, where information is widely available, it can be challenging for active fund managers to outperform the market. ETFs provide a straightforward way to invest in global markets without the risk of underperformance from a fund manager. Additionally, ETFs allow for targeted exposure to specific themes or segments of the market, which may not be offered by active funds. Investing in foreign equities through ETFs is a widely accepted approach even among institutional investors around the world. Vanguard Energy ETF gave 60-plus percentage returns in 2022.
Online Brokerages
One of the simplest ways to invest in global stock markets is to use an online brokerage account. This can be done from the comfort of your home and you can easily access a wide range of global stock markets and sectors. Additionally, many online brokers provide educational resources, research tools, and other support to help you make informed investment decisions. For example, IndiaINX GA provides India access to invest online in 33 Countries, 40,000 Mutual Funds, and ETFs. You can access these and such platforms through various online Brokers in India like Tradeplus, HDFC Securities, ICICI Securities, Angel one, etc.
In conclusion, global investing in stock markets is a great way to diversify your portfolio, access a wide range of investment options, and capture higher returns over the long term. With the right tools and resources, it is easy to get started and to start capitalizing on the opportunities that exist in the global stock markets.
(Author is Chief Executive Officer, Tradeplus)