Given the size of the Australian share market, which currently represent approximately 1% of the international investment market, it is important to allocate funds internationally to have a truly balanced portfolio. Exposure to international equity markets enables access to a larger and more varied investment universe, which reduces concentration risk typically associated with any single market.
Diversification: International investments can help reduce the overall portfolio risk through more efficient distribution. An allocation to emerging markets allows your portfolio to participate in investment opportunities in sectors with potential high growth levels than local Australian market.
The world’s largest exchanges are offshore, as such greater liquidity can be accessed offshore.
Exchange rate movements can be both positive and negative in terms of portfolio performance.
At VFS Group, we believe that it’s no longer the sole responsibility of the United States & Europe to drive global economic growth, there is a new economic superpower in town one that is situated to 2-4 hours time difference and 8-10 hour flight from our shores.
You may be thinking China, and your partially right! We are referring to the ASIAN continent.
Asia is currently undergoing the biggest economic transformation ever seen in human history and is undoubtedly in the center of the financial world. As such our international portfolio construction has a good portion focused towards the Asian economies. Giving our clients exposure to the growing economies in Asia that are building huge middle classes.
Asians Currently Consume:
- 37% of the World Energy
- 42% of the Worlds Cars
- 44% of the World Mobile Phones
- Have 44 Percent of the Worlds Wealth:
Source: BNP Paribas
Over of the next 40 years 1.3 billion people in the Asian continent will go from a low-income class to a middle-income class equivalent to an Australian standard of living. Our thought process is that such growth will lead to more disposable income in the hands of Asian citizens. And as such the ones that will benefit primarily from such a rising disposable income will be Asian companies that are providing the goods and services to fuel the consumption within the Asian economic region.
Take a look at the past and we see the rise of some Asian economies. For example, let us look at South Korea. No disrespect to the South Korean economy however 50 years ago South Korea was a peasant and agricultural nation. Now it is the 13th largest economy in the world with the 12th largest stock exchange globally. It has also produced visionary companies, such as Samsung, LG, Hyundai and KIA Motors.
We at VFS Group believe there are many future Samsung’s and KIA’s in the Asian region. You just need the right team looking for them.