Why Global Investing Makes Sense For Indians

ONE QUESTION I get often is: Why should Indians look at investing overseas when India is the fastest-growing economy? Let’s look at a few aspects.

First, India is 3-4% of the world market capitalisation in equities. Hence, what would be the reason to put 100% or 90% of your assets in a single geography?

In every country, investors have a home country bias, which means they invest disproportionately in their home markets. In India, this phenomenon is very pronounced. And part of the reason is that historically, we did not have capital account convertibility. Now, Liberalised Remittance Scheme allows you to take out $250,000 per head per annum which, in a family of four, means up to a million dollars every year.

Nevertheless, Indians have still not really gotten around to thinking about global investing. Or if they do, they think buying a Nasdaq ETF is enough. But true global investing means looking at all geographies, all asset classes.

And Why’s That?

I will go back to my personal history, to the Asian crisis approximately 25 years ago when, in just one year, in dollar terms, markets fell between 50% (Taiwan) and 90% (Indonesia); with Thailand, South Korea, Philippines, etc. in between.

And these were not basket-case economies. These were the Asian Tigers —the fastest-growing economies of the time. India wanted to be an Asian Tiger. And yet if you were an Indonesian investor, you would have seen your net worth wiped out by 90% in a single year.

For me, personally, that was a wake-up call on risks of being invested in a single market. So, in 1999, First Global was the first Asian firm to become a member of the London Stock Exchange. A crisis is one thing, but even without a crisis, when I started working in the ‘80s, the dollar was ₹12, now it is ₹83-84, 85% depreciation in the course of less than a single career.

Therefore, when we talk of long-term planning, financial goals and asset allocation, you have to look at global investing. And that means, over a period of time, at least 30%, if not more, of your assets should be global. Even in terms of goals, many want their children to study overseas. Several have kids living abroad and post retirement want to spend time with them. Those are all considerations for not having all your savings in rupees.

It is the old adage of not putting all your eggs in one basket, or what we call SCCARs (Single Country Single Currency Single Asset Risks).

Therefore, while I say India will outperform, this diversification is not recommended with a one-year perspective. Also, if you just buy a single other market, even if it’s the largest, which is the U.S., that is improving things slightly. But it is still not global because leadership changes. In 2021, when there were all these Nasdaq ETFs and funds being launched, I had said publicly that it was recency bias. Nasdaq has been a great performer for three years. But do you think it will last forever? No theme lasts forever. Of course, in 2022 came the crash!

During 2003 to 2007, we heard stories that the U.S. is over as a world leader, and it’s the decade of the emerging markets. Why? Because emerging markets were doing well. In 2010-20, when the U.S. was performing, those stories were forgotten.

Always remember: Whether it’s geography, asset classes or within sectors, no theme lasts forever. Moreover, 85-90% of your returns, the first page of any investing book, come from asset allocation, not security selection. Hence get your asset allocation right, and that includes global diversification. True global diversification.