Try for a slice of global growth, but mind the manners of rupee
Dec 30 2013
Calendar 2013 saw the world economy enter a phase of transition, where the advanced economies strengthened gradually and the emerging market economies slowed down significantly. At constant prices, global GDP is expected to grow at 3 per cent in calendar 2014 compared with 2.3 per calendar in the year gone by. And a significant part of the growth will come from the developed world.
Among the developed nations, recent data points from the US market indicate that the underlying recovery is gaining traction. US seems to be recovering with projected GDP growth of 2.6 per cent in calendar 2014 compared with 1.6 per cent growth in calendar 2013. The European economy has stabilised this year and is already showing signs of improvement; however sustainability of the recovery is still being debated.
The outlook for the emerging economies will largely depend on how they do when global liquidity starts abating. According to an IMF report on the world economic outlook, the unusually favourable global conditions, including high commodity prices and rapid financial market development increased the growth potential in these economies during the 2000s. As commodity prices stabilise and financial conditions tighten, potential growth in emerging markets is expected to be lower, leading to sharp cyclical adjustments.
That said, global funds can be a good opportunity for domestic investors to play the recovery in developed markets and also benefit from the evolving emerging economies. However, what needs to be taken into account here is that there is a currency angle here.
For, the returns to the domestic investor would materialise in domestic currency; hence despite the clear benefits of diversification, investors should be wary of currency fluctuations, lest a negative movement in the local currency wipes out all the gains made on an investment in an overseas-focused fund.