Investing abroad as a part of the diversification process across geographies is a well-crafted strategy.
At the start of 2020, there was absolutely no clue what the year ahead had in store. Slowly and steadily the COVID-19 pandemic spread across countries and the continents. By the end of March, the lockdown restrictions were largely in place. The economic activities and the GDP of countries at large were doomed to fall and the stock market reacted swiftly.
Nasdaq 100 touched a low of 6994 on March 20, 2020, and so did the other leading indices. The fall, however, was short-lived and with the intervention of the Federal Reserve, liquidity was infused and the market rout stopped.
Thereafter, what a recovery it has been from the lows of March. The YTD returns ( approximate returns as on October 28, 2020) for some of the leading US indices has been:
Nasdaq 100: 32 per cent
Nasdaq Composite: 27 per cent
S&P 500: 5 per cent
2020 is also the year of U.S. Presidential elections and volatility is bound to be high leading up to the elections. The volatility may well continue even after the election results. Post elections based on the outcome for the Republicans and the Democrats, the focus will also shift to the rising Coronavirus infections and any stimulus that can bring stability to the US economy.
Markets are always forward-looking and long term investors need not worry too much about the results of the election. Although market movements are unpredictable and uncertain, they are manageable. “Though elections lead to short term swings, it’s not the right reason to change your investment portfolio. Making investment decisions based on possible election outcomes is purely speculative. In the end, the company’s performance and earnings growth will dictate the market valuation. So investors are advised to remain patient and disciplined to their investment strategy and ignore the market noise related to election results,” says Pranjal Kamra, CEO, Finology.
As an investor, one needs to judiciously allocate resources with adequate diversification across sectors and market capitalization. Look for themes and sectors which are immune to the economic downturns. For Indian investors looking to invest in US markets, there are brokerage houses that help one to invest directly into US stocks, ETFs, keeping the investing process as simple as it can be. Such brokerages also have theme-based investing packages to help investors take opportunities arising in the world’s biggest economy.
Picking fundamentally sound stocks and focusing on stocks that currently have the ‘work from home advantage’ could be something that investors can do. In the post-COVID world, the technology companies are looked upon as a must-have in one’s portfolio. Talking of specific companies, the FAANG – Facebook, Apple, Amazon, Netflix and Google (Alphabet) – have been the winner stocks especially since the start of 2020 and the growth looks promising for them. For a retail Indian investor, there are several investment opportunities available in the US markets. And, investing abroad as a part of the diversification process across geographies is a well-crafted strategy as well.