Globalisation Affects Investment

Diversify Your Assets?

An article published in Newsweek brings up an interesting notion as it discusses the recent hype surrounding globalization making the world a smaller place, with barriers falling and fear of foreign markets diminishing. The latest trend with small investors is the diversification of assets on a global scale, as they search the world for big returns.

The adage ‘don’t put all your eggs in one basket’ dates back to 17th century Italy, but investors have only just started to catch on. Financial advisors have been warning clients to diversify for years, but typical investors are only recently starting to venture beyond their local markets. Spreading your bets should apply not only to stocks versus bonds and real estate, but also the United States versus Europe, as well as Japan and emerging markets like South Africa.

A major reason for the growing trend towards global investment is simply because advancements in technology make it possible. Restrictions on the movement of capital are beginning to fall away and the Internet makes it easier to track what is happening in remote places. Historically, it has been low interest rates that have pushed investors to seek profit further afield, particularly as emerging markets have become more open to welcoming them.

While daytraders dabble in Thai baht and South African rand online, chat rooms compare the merits of blue chips from Boston to Beijing and Budapest, with US workers pouring their savings into emerging market funds and Britons seeking out real estate in the sunny African climes. The International Monetary Fund (IMF) released its world economic outlook this month and reported that foreign portfolio holdings as a percentage of market capitalization have increased in many developed countries around the world.

The crux of the matter seems to be that while it is probably sensible to invest in what you know, the reality is that investors often think they know a lot more about their local market than they really do. Americans in particular have been left with a bitter taste after recent experience, which perhaps explains the growing tendency to invest abroad. In light of the current South African market, perhaps it would serve small investors well to diversify their assets globally.

The information in this article is courtesy of Newsweek (“Money Travels: As Barriers Fall and Fear of Foreign Markets Diminishes, Small Investors Go Global in the Search for Big Returns”, 2 July 2008).

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