The vital factor essential for earning returns on a steady curve and for preserving the wealth is building a record that is flexible to negative economic factors. And, such a flexible portfolio can be achieved through the process of diversification. There are several aspects of diversifying, and one typical manner among them is by investing in different classes of assets. Other procedures of diversifying are by investing in several global economies. These techniques have become more comfortable with the recent advancement in technology, which is quite affordable for Indian investors.
So Which Are The Economies That Are Affordable And Liable For The Investors To Invest?
With the current rating of the markets across the globe, it seems to be an intriguing factor for investors to invest in emerging markets sourcing that promises them with profitable returns. Many emerging markets are confident about their growth in the upcoming years. And since growth in the GDP will be customarily accompanied by the rise in income, investors are enticed to think that this rise can have a positive effect on the local stock market. The various regions around the planet that have witnessed the growth of GDP in 2020 are South Asia, Southeast Asia, East Asia, Sub-Saharan Africa, Central America, Europe, South America, and Western Europe.
With GDP being an essential factor in determining the growth of the emerging markets, it cannot be considered as the only indicator of the market growth. Other factors also come into play, when determining the growth of emerging markets.
The growth in GDP is only a measurement of the growth in the economy and not a true indicator of the growth in the financial market. The increase in consumption that comes with the growth in the economy in the global market might not be a translation to the increase in revenue for the local companies. We can think about it in this way, suppose the income level of the Indians is going up, and this, in turn, is resulting in an increase in the streaming consumption through Spotify and Netflix, the local stock market will not reflect this growth in income by Indian residents. And, this will happen because these companies are traded publicly in the US. This shows that the growth in GDP cannot be the standalone indicator or it is an insufficient indicator, especially when we are talking about investing in the emerging market.
Stock market returns and the GDP growth have a poor correlation. The average returns of the South-east Asian countries were between 0.68% and 0.20% for the past four years, despite a +5% growth in their real GDP per year.
The US and China top the list of markets that have had the highest returns for the past years. These two countries are followed by Taiwan, India, and Brazil. Being an Indian investor, you can easily be allowed to gain access to the Indian markets because you have a revelation to one of the fastest developing emerging economies. Therefore, we can focus on the remaining emerging markets sourcing that is developing at the same pace.
Despite the trade war between China and the US, the stock market of China performed well, which was up by 23.9% in 2019. China did really well in 2019, compared to a loss of 25% in 2018. The key roles that played their part well in this stock market growth were government subsidies and the improved sentiment of investors. As stated by Nikkei, the grants given out by the Chinese government were totaled to 5% of the total profit earned by the public companies of China in 2018. These subsidies were increased by another 15% of the total profit earned by public companies in 2019. The practice of boosting exports by subsidizing the local markets violates the policies stated by the World Trade Organization. Also, this practice is one of the major reasons for an argument between China and the US.
The best performing years of the Taiwan Index had been 2019. The reason behind this drive was the pouring of capital by foreign investors into the country. As stated by Bloomberg, Taiwan enjoyed an investment of more than the US $6 billion dollars, of which half was invested in the Taiwan semiconductor manufacturing co. The TSMC is one of the largest manufacturing companies of semiconductors by volume. Also, the share price of this manufacturing company had climbed by 67 % last year.
The Brazilian Index had gained 24% in 2018, despite a slow economic growth rate. The investors who invest in the economy of Brazil are of the expectation that a combination of low inflation, low rates of interest, and an extension of the economic reforms from the administration will lead to a boost in the economy. Although there had been a rise in recent years, Brazil still has a history of political instability and corruption which can otherwise result in high volatilities in the market.
The US market should not be counted just because it is the developing market. The US captures not only its own economy but also the global economy. The US derives a revenue of more than 40% from the outside countries. The S&P 500 companies in the US have shown a growth of more than two times in the past decade. A relatively optimistic outlook has been provided by Goldman Sachs for the year 2020, due to the trade tensions between China and the US and the continuation of consumer spending strength. Therefore, investing through ETFs in the US market is one of the easiest ways to gain access to international markets.
You can achieve a resilient portfolio through Global diversification. And, this has been made easier and affordable by the use of technology. Being keen investors who want to spend in the emerging markets, you should also consider other factors outside GDP. Finally, the easiest way of investing in an emerging market sourcing is by investing through ETFs in the US market.