Looking to invest in foreign stocks? Read this -
A case for why FOMO for investing in international stocks is unwarranted
Let’s look at stock market returns (in USD terms) in major international markets -
Japan - flat since 1990s
China - flat since 2006
Singapore - flat since 2007
Latin America - flat since 2007
Europe - flat since 2007
South Africa - flat since 2010s
Middle East - flat since 2010s
US - 3x in 10 years
India - 2x in 10 years
The bottom line is when you look at the global equity markets, only India and US have given decent returns in the past decade. Very few people appreciate this fact.
So what’s happening here?
Many of the developed world markets (Japan, Europe, Singapore) have not performed because these places don’t have much scope for further development, demographics are weak and innovation has not been strong like US.
Then there are developing world markets like South Africa, Latin America etc - which underperformed due to mismanaged economies and corruption.
The resource dependent ones like Middle East, Canada and Australia are reeling from lack of meaningful innovation and over-reliance on resources.
China is a unique case - nobody would have guessed China to give such poor returns despite high GDP growth and innovation. The problem with China is that the growth has been boosted by a real estate bubble and generally the investors are not confident of investing in China as the government controls everything there.
That leaves us with US and India, the only 2 major markets which gave good returns in the past decade.
What works for the US and what doesn’t?
Unlike Europe, US did not stagnate due to one key ingredient - innovation. Look at all the major tech companies that emerged in the last decade and most of them are US based. US has kept the innovation engine running through its effective immigration policies, deep venture capital ecosystem and favourable regulations.
But there is another angle that explains the US outperformance – the status of US dollar as the global reserve currency. This give US the privilege to print more US dollars to fund government deficits and keep money flowing in the economy.
Experts I follow believe that US market is in a bubble territory and the next decade may not likely be as rosy as the previous one.
The case for India
India has performed well and I expect it will continue to do so. It has some good things going for it -
Lot of scope for development - look at any metric on a per capita basis - vehicle ownership, A/C ownership, energy usage, mutual fund penetration, access to loans - India is way behind US and China. Unlike the developed world, there is scope for growth in every sector from better penetration.
Innovation - after liberalisation of economy in 1990s, Indians have slowly become more confident and entrepreneurial. In the last decade we can see India starting to arrive as a force of innovation in the world, with special thanks to the start up ecosystem. Experience from past shows that these trends tend to get stronger and deliver outsized returns over time.
Respect for rule of law - yes there is corruption and no ease of doing business, but generally India has good respect for rule of law compare to other developing countries. And this is true across different governments. Investors don't have to fear about nationalisation of their assets, sanctions, security incidents or Government playing favourites and choosing winners.
The Indian equity markets are not grossly overvalued while the government's financial condition is also not stretched. It's highly likely that India will continue to do well in the next decade like in the previous one.
What should an NRI do?
If you are living in the US, Europe, Singapore, Australia etc - consider having some allocation to Indian stock markets. There are many ways to do it - reach out to me if you need help. I believe there are higher chances of making money even after taking into account any loss due to depreciation of Indian Rupee against US dollar.
And should you invest in US markets?
Many investors in India I speak to have already started investing or are keen on investing in the US markets. Their point is that India does not have the equivalent of Googles and Teslas of the world - and I get it.
My message is that don't let FOMO - fear of missing out – drive this decision. If you are an India, you seem to be in one of the best places in the world to make returns from investing.
What do you think about the takeaway of this article? Did it help shape your perspective on international investing? Let me know what you think!
And if you know of anyone who is dabbling into international investing, do share this article with them :)