Why retail investors should go global

Aided by the high growth rate and robust consumption demand, India, along with the other emerging markets, is largely credited with leading the global recovery. There's no doubt that investors have benefited from it as well as from the spectacular rally in the stock market in the past one year.

So the question arises as to why Indian investors should consider going beyond the domestic boundaries and invest in overseas markets. The answer is crystal clear if one analyses the trends of how different equity markets across the world have performed over a period of, say, 20 years starting December 1990. As recently as 2007, the American and UK markets had outperformed the Indian and Chinese counterparts significantly. However, after 2007, both these countries have witnessed a period of spectacular growth.

When the markets were on the downswing between 2008 and 2009, the Bombay Stock Exchange's Sensex and China's CSI 300 witnessed a sharper decline compared with that of the US Dow Jones. This clearly reinforces the fact that no market can perform consistently across different time periods, making a strong case for diversification in the overseas markets.

Let's consider investment in commodities, which offers a distinct benefit of acting as a hedge against inflation. To truly benefit from commodities, we need to pursue the avenues beyond India for the simple reason that there are several geographies that boast richer commodity reserves. If an investor wants to benefit from the upside in the commodity price movements, he needs to invest in the economies that are major producers.

While it is easy to see the benefits of diversifying in the overseas markets, the challenge lies in its implementation. One needs time and expertise to spot these opportunities. For retail investors, the mutual fund route has to be the most transparent, cost-effective and affordable one. There is a host of mutual funds that invests directly or indirectly in stocks abroad through multiple models.

One can also opt to invest directly in the international markets or go through exchange-traded funds (ETFs). As ETFs mirror their benchmark indices in terms of selection and weightage of stocks in the portfolio, they may not outperform the broader market.

Investing abroad definitely has its benefits. As a starting point, investors should consider putting in at least 15-20% of their assets in these markets. They can review this allocation at a later date depending upon the developments across the world.

ARINDAM GHOSH
CEO, Mirae Asset Global Investments India

WHAT 2011 HAS IN STORE FOR YOU

1. How 2011 will impact you 2. Buoyant market, bullish returns 3. A roller-coaster year ahead 4. Top stock picks for 2011 5. Tracking a positive theme 6. Retail investors should go global 7. Keep pace with changing times 8. Debt funds on solid ground 9. Make the best of uncertainty 10. All set for new, improved cover 11. 'New norms don't include incentives' 12. Invest in a house, cautiously 13. 'Teaser rates don't benefit anyone' 14. Supply crunch to push commodity prices