…opportunities and challenges in global markets
The globalised nature of today’s financial markets means that investors are no longer limited to their home country when looking for investment opportunities. International investing refers to the practice of allocating capital in investment opportunities outside of one’s home country. This can be achieved through purchasing stocks, bonds or other financial instruments in foreign markets; or by directly investing in assets, such as real-estate, in another country.
International investing offers a world of potential, presenting opportunities to diversify portfolios, tap into emerging markets and capitalise on global trends. But as with all investment opportunities, there are risks and challenges. This article delves into the intricacies of international investing, punctuating the discussion with real-world examples.
Opportunities in International Investing
International investments allow portfolio diversification beyond the confines of a domestic market. By spreading investments across various countries and regions, investors can insulate their portfolios from localised economic downturns. An investor in the U.S. stock market during the 2008 financial crisis would have benefitted from having portions of their investments in markets like India or China, which showed relative resilience during that period. Ghana’s economy isn’t solely tied to Western markets. By investing in Ghana, foreign investors can diversify from traditional markets; potentially benefiting from Ghana’s growth sectors like agriculture, mining and real-estate.
Countries like Brazil, Russia, India and China (often referred to as the BRIC nations) present significant growth opportunities. As these economies develop, local businesses can offer substantial returns on investment. Companies like Tencent in China or Reliance Industries in India have seen explosive growth, rewarding international investors with impressive returns. Ghana’s cocoa industry is one of the world’s largest. Investing in this sector could offer growth potential as global demand for chocolate and related products increases.
Sometimes, profits can be amplified by the appreciation of a foreign currency against the investor’s home currency. If an American investor bought European stocks and the euro appreciated against the US dollar, the investor would gain from both the stock’s appreciation and the currency’s rise when converting back to dollars. If the Ghanaian cedi appreciates against an investor’s home currency, returns from investments in Ghana could see an additional boost.
Access to Unique Companies and Sectors
Some countries have strong sectors that might not be as prevalent in an investor’s home market. Investors looking to tap into the automotive industry might consider German stocks, given the country’s strong reputation in car manufacturing with companies like BMW and Volkswagen. Ghana has a burgeoning tech startup scene in cities like Accra. Investing in these early-stage companies might offer unique growth opportunities.
Challenges in International Investing
Political and Economic Risks
Investing in a foreign country exposes investors to that country’s political and economic landscape. Governments can change regulations, impose taxes or even nationalise industries. Although Ghana is considered one of West Africa’s more stable democracies, it has seen periods of political unrest and economic volatility – which can impact foreign investments. In Venezuela, the nationalisation of several industries led to significant losses for foreign investors.
While currency appreciation can boost returns, depreciation can erode them. An investment in the UK might have seen significant returns in terms of the British pound. However, if the pound depreciates against an investor’s home currency, potential profits might be reduced. The Ghanaian cedi has experienced fluctuations in the past, which could impact the returns for a foreign investor when converting profits back to their home currency.
Lack of Transparency and Regulation
Not all countries have stringent regulatory standards or transparent business practices, potentially leading to fraud or misleading financial reporting. The collapse of Enron led to tighter regulations in the US – but similar regulations might not exist in other countries, exposing investors to potential scams. While Ghana has made strides in improving business transparency, it’s essential to navigate the business landscape with a clear understanding of local regulations to avoid potential pitfalls.
Cultural and Market Differences
Understanding cultural nuances and market operations can be challenging for international investors. Understanding the local Ghanaian business culture, which might emphasise community engagement and relationship-building, is crucial for foreign investors looking to establish a foothold. In Japan business dealings are deeply rooted in tradition and etiquette, which foreign investors might find challenging to navigate.
Some foreign exchanges or stocks might not be as liquid as those in more developed markets, making it harder to buy or sell investments without affecting their price. While the Ghana Stock Exchange (GSE) is one of the leading exchanges in West Africa, some listed companies might not have the same trading volumes as those on larger international exchanges like New York or London.
International investing offers a tapestry of opportunities for those willing to venture beyond their borders. While the potential for higher returns and diversification is appealing, it’s essential for investors to be aware of the inherent risks and challenges. Proper research, coupled with an understanding of global trends and regional specifics, will be key to steering through the exciting world of international investing.
Ghana, with its rich resources and growing sectors, presents a range of investment opportunities. However, as with any international market, it’s crucial to approach it with a keen understanding of both the potential rewards and inherent risks. Investing in Ghana, as in any emerging market, requires thorough research, local partnerships and a long-term perspective.
Ashfield Investment Managers (AIM) is an integrated Asset Management company licenced by the Securities and Exchange Commission (SEC). We offer innovative investment management services to corporates, individual high-net-worth and retail clients, government agencies and development finance institutions (DFIs) across Africa.
The Fund Manager is also exploring other markets to diversify against country risk while taking a cautious approach to exploring other financial instruments in the domestic market. The manager intends following these strategies to pursue growth while providing the needed liquidity for investors.
Our experience cuts across various sectors, and we achieve superior results for clients because our decisions are based on reliable data. With our data-driven investment processes, the desire to work with you on growing your wealth is our topmost priority. Services on offer include Specialised Fund Management, Institutional and Corporate Fund Management, Private Wealth Management and Collective Investment Schemes.
The firm has three mutual fund products under management, namely: Gold Money Market Fund (GMMF), AIM Fixed Income Trust and AIM Multi-Asset Trust.
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