International investing has always been intriguing and exciting for Indian traders who were only exposed to the nuances of the Indian stock market. That was until a few years ago. With the shrinking of geographic barriers, thanks to technology, awareness of global businesses, economies and politics has increased dramatically. If you’re looking to add international stocks to your portfolio, here are some basics you need to know.
Why should Indian investors add international stocks to their portfolios?
1. INR returns over the past 10 years
When we look at the INR returns of various geographies over the past 10 years, several geographies have outperformed the Indian stock market returns, while some of the best returns have come from investing in the US markets. The YTD 2021 returns of the S&P 500 Index exceeded 26%, which is also higher than the BSE Sensex returns by 21% YTD 2021. Thus, the Global Exposure helps Indian investors to maximize their portfolio returns with a mix diverse geographic areas. A look at the image below will highlight INR returns over the past 10 years.
In addition, Indian stock markets have a lower correlation with other stock markets, which is likely to lead to diversification and elimination of country risks.
Correlation of Indian stocks compared to other economies
2. Currency appreciation and yield
The INR has depreciated against the US dollar in recent years and when the rupee depreciates, the value of foreign assets increases. This is also a reason why the addition of international equities to the portfolios has greatly benefited Indian investors. The graph below shows the value of 100 which has changed over the past 10 years due to the depreciation of the rupee.
3. The addition of international equities gives exposure to trending themes on a global scale.
Some of the disruptive themes for 2022 include AI, cloud, e-commerce and digital life, Metaverse, etc. which will benefit investors who gain exposure to global equities. The digital economy landscape illustrated below gives you an idea of several disruptive themes in the digital space for example.
Ways to Build a Global Portfolio
Increased exposure to global brands has led to an interest in investing in brands that are used daily – Amazon, Facebook, Google and others. This trend prompted even passive investors to create a portfolio that could give them
- Wider asset options
- Portfolio stability
- Geographic diversification and
- exposure to trending topics globally
However, markets like the United States can seem relatively precarious and risky to new investors who have not made a foray into global markets, nor do they have the guidance necessary to successfully reap the benefits of a portfolio geographically. diversified. Here are some ways to build your global portfolio or seamlessly add foreign stocks to your existing basket of stocks:
- Understanding and assessing your risk appetite is first and foremost while investing in global markets. Just like stocks and markets around the world, every investor is unique and different from others. While being extremely promising, global markets may be subject to different triggers than the home country. To understand your risk appetite:
- You must understand your financial situation: expected income in the years to come; expense savings ratios; and long-term goals as an investor. Additionally, you may rank as a tolerant high risk, moderate risk, and low risk investor.
- You can also take into consideration your purchasing power and your career developments which may have an impact on actual risk tolerance. If you have a fluctuating income, you may be less risk tolerant compared to those with relatively fixed monthly or annual income.
- Knowledge of the markets, familiarity with market triggers and the performance of the economy of the country you are investing in will also help you get a better idea of your risk aversion and the extent to which your portfolio may be exposed. to global markets. .
- Choosing actions that you understand and follow can help reduce ambiguity. Investing in an unfamiliar market can often be a daunting experience at first, especially if you are new to it. By mapping your risk appetite, you would also be able to better understand the companies that you love and follow regularly.
- The key here is familiarity. It is wise to select a basket whose activities you understand. It becomes easier to make day-to-day trading or investing decisions more wisely when the market fluctuates.
- Learn about the company, its past performance, future growth prospects, management advice and other key financial data to understand its growth potential over a period of time and the impact of market influencers like the Fed or Elon Musk.
- Once you have familiarized yourself with a set of companies, you can start investing in them and slowly progress to a basket of stocks, or ETFs, or even low-risk passive funds like index funds, in order to better understand the new markets that allow an investor to cash. on the potential gains from exposure to global markets.
- The next crucial step is to review and assess the profitability / earnings of your foreign stocks against the existing assets in your basket: Indian investors are always advised to devote 10-15% foreign stocks in their portfolio, especially especially if they are new to global equity trading. This percentage can then be adjusted based on the investment experience and suggestions of your investment advisor.
Periodically evaluating the performance of the stocks in your portfolio can help ensure that you are on track to meet your financial goals. Intermittent reviews can also help you assess and refine your asset allocation strategy. Irregular patterns can make your portfolio too aggressive or conservative for your risk profile, actually lowering the likelihood that you will achieve your goals.
- Analyzing the long-term performance of your portfolio helps in better planning: to invest, you have to make decisions about events that have not yet happened. It is therefore necessary to carefully analyze the performance of each of the assets in the portfolio, to match it with its previous performance and to try to estimate the likely profits in the future.
When investing in stocks, investors need to understand the time value of money. The longer you hold your portfolios with good, fundamentally sound companies, the bigger the profits. The returns of a long-term investor who holds their portfolio for 10 to 15 years have outperformed those of investors who retreat for short-term gains. This is not only the case for equities but also for ETFs or any fund that aims to be invested over the long term.
Venturing into a new market can be a different experience from time to time as it depends on market conditions and economic cycles at the time of the initial investment. However, one should avoid penny stocks and invest in stocks that tend to rise due to the speculative play (dynamic stocks) of other traders in the market.
For new investors, investing in Stacks, which contains an expertly curated portfolio of blue-chip and industry-specific company stocks, revolving stocks, or specific risk stocks can help them analyze their mix of perfect assets for successful investments in global markets. The overall goal of investing should be to learn about different markets and how they work in order to get the maximum benefit from investing in a variety of companies listed on different stock markets.