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Investments in Global Markets

CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)

16 August 2010

Investments in Global Markets

The global economy has changed significantly in the last 30 years. In 1970, the capital that moved around the globe to support trade in goods and services far exceeded the capital that moved to support direct and portfolio investment. Presently, the capital flows outweigh trade flows by a factor of over 60 to one. This increase in capital flow has resulted due to factors like globalization, change in nature and type of investors, easy access to latest information, and modern financial derivatives.

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CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)
Replied 16 August 2010

Opportunities in Global Markets

Stocks and Shares: Over the years, stock markets have attracted a great amount of investments while still holding a large scope for expansion. For example, in the US markets nearly 63 per cent people invest in the stock markets, either directly or through the mutual funds route; where as in India, the numbers are very low with less than 5 per cent of the population investing directly or indirectly in the stock market. The Asian average, barring China, is 15 per cent.
Bond Markets: The bond market, also known as debt, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. Bond market means the government bond market because of its size, liquidity, lack of credit risk and therefore, sensitivity to interest rates. Due to the inverse relationship between bond valuation and interest rates, this market is often used to indicate changes in interest rates or the shape of the yield curve.
Forex Markets: The Inter-Bank Foreign Exchange Currency Market is known as the FOREX Currency Market and is popularly known as Forex market. The main participants in this market have been world’s largest banks, financial institutions, insurance companies, and governments. The internet has made this exclusive market available to individual investors.
Commodity Markets: This refers to markets where raw or primary products are traded. This market covers physical product [food, metals, electricity] markets and does not deal in services. Forward contracts and hedging are the main reasons for which the commodity markets are popular.

Benefits of Global Investing

The two main benefits of investing in international markets are:

Higher Growth Potential
Country Diversification

Types of Investments available

Currency fund, which invests in various currencies
Property fund, which invests in commercial property
A fund which invests in commodities and companies which are active worldwide.
A fund of funds which invests in instruments, such as equity, debt, and commodities.
Hedge funds

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CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)
Replied 16 August 2010

Basic categories of funds

World Funds: These are the most diverse of all other funds. They invest in any region of the world. They tend to be safer as they can diversify across any type of developed economies.
Foreign Funds: Depending on the countries selected for investment, foreign funds can range from safe to risky. The best thing to do is to choose a fund with a good balance amongst countries, or make sure that the fund manager is doing a good job of moving in and out of regions profitably.
Emerging-market Funds: These funds are very volatile. They invest in undeveloped regions of the world that have enormous growth potential; but at the same time pose significant risks such as political upheaval, corruption, and currency collapse.
Country-specific Funds: These funds invest in one country or particular region of the world. This kind of concentration makes them especially volatile, particularly if one picks a fund that invests in a country that is viewed as an emerging market.