Investing in international funds is becoming increasingly popular, with the inflows in such schemes rising steadily. Industry body AMFI’s data shows that the number of investors in overseas funds has risen more than three times over the last one year. That’s just about retail investors. When it comes to high net-worth investors (HNIs), the folios have increased more than five times.
While international markets offer geographical diversification, they also go through different phases of economic cycles. Moneycontrol’s Jash Kriplani interacts with Trideep Bhattacharya, Co-CIO Equities, Edelweiss Mutual Fund. Bhattacharya has spent several years as an analyst and portfolio manager tracking Asian Emerging Markets (EMs) and Developed Markets (DMs). He decodes the latest developments in international markets and talks about how country-specific risks can be diversified via a right mix of international investments. Edited excerpts.
Could investments in emerging and developed markets complement each other?
Asian emerging markets are quite diverse, whether you look at China, India, Korea or Taiwan. All of them are going through different stages of development. So, on the one hand, China is in the middle of a climb up on the ESG curve by reducing dependence on highly polluting sectors such as chemicals, to taxing some of the super-normal profits made by a tech and fintech companies. On the other hand, countries such as India are promoting the Production Linked Incentive (PLI) scheme and other schemes to kick-start economic growth. Meanwhile, South Korea and Taiwan are suffering due to the chip shortages, which is also impacting most countries. Overall, Asian emerging markets are going to be a hotbed of earnings upgrades. In the developed markets, the US has launched a massive infrastructure stimulus, which is likely to flow through to corporate financials over the next few years. This shows the importance of having a wider geographical diversification in international investments, as different regions go through their own economic phases at different points of time.
Listen to the full interaction: Simply Save | Why it is important to make international investments across emerging and developed markets?Edelweiss MF has a China fund. How are Chinese actions likely to impact the fund?
China is in the middle of a transition, but it is a good transition. It is trying to reduce the dependence on polluting industries, and there is also a socialistic focus, with tightening of regulations around edtech and fintech companies. We have faith in our international funds partner JP Morgan, It would adequate care and carry out due diligence to choose business models that are not impacted by these regulations. And based on our understanding, it continues to be the case. JP Morgan is a bottom-up investor, like us. So, we have been able to weed out the impact of these regulations on the fund, to the extent possible. We feel fairly confident that investors in Edelweiss Greater China fund
will get a good bit of currency, as well as regional diversification and exposure to a growing economy such as China.Which new businesses do investors get to participate in through geographic diversification?
In the global context, there are electric vehicle businesses, vegan food retailers, OTT players, Airbnb, and luxury brands such as Louis Vuitton. In Asian markets, there are unique business models – for example, the semi-conductor business in Taiwan, the Japanese company Shimano that makes geared bicycle chains etc. You can’t get exposure to these businesses in domestic markets. Investing in multiple geographies may also soften the impact of fluctuations in currency exchange rates, and favourable currency movements could also add to the returns from international funds.