Investing globally is critical to portfolio growth and diversifying risk, according to a new white paper by BNY Mellon Asset Management.
But investors must be careful that they understand the risks of each country before they dive in to ensure they don’t get slammed by losses.
“As individual country risks have changed, every company, sector, and investment opportunity should be considered within a global context to identify long-term winners,” said Helena Morrissey, chief executive officer of Newton, one of the BNY Mellon’s boutique firms that contributed to the white paper.
Investors need to watch out for landmines, such as the differences between the economy in their home countries and those in foreign markets.
Finding an expert in global stocks is key. “Active global equity managers with deep knowledge of local conditions and future trends, who are able to accurately select companies and countries with the greatest potential for outperforming returns, have been rewarded after and even during protracted bear markets,” said Kirk Henry, portfolio manager at The Boston Company Asset Management LLC, in a statement.
According to the BNY Mellon white paper, the rise of emerging markets has created opportunities for both stocks and bonds. With faster GDP growth and increasing productivity, emerging markets are expected to continue to outperform more developed markets. The United States used to be the economic superpower, but more and more investors are looking at emerging markets as growth centers.
Yet investors in developed countries are still over-relying on domestic equities. “Investing globally can help investors spread their risks and position themselves to achieve better returns across a range of economic scenarios,” said Curtis Arledge, vice chairman of BNY Mellon responsible for asset and wealth management.
There are risks to global investing, which the white paper addresses, such as currency translation risks, liquidity concerns, and fiscal and political uncertainty, which is all the more reason why investors need experts in these areas.
“While many emerging market economies were not as severely affected by the financial crisis, the growth in developed economies has been constrained by a deleveraging process that is shrinking the amount of available credit,” said Mitchell Harris, interim head of asset management at BNY Mellon, in a statement.
This has meant big differences between asset classes and currencies around the world, as well as heightened volatility. But don’t look at these only as danger zones, but as opportunities as well.