GO GLOBAL

The Indian rupee has been weakening over the last 2 years. The question is that with the huge current account deficit, recovery may not be any time soon. A weak rupee, however, can help you make money – if you own International funds. These funds have given about 5% returns just with the rupee depreciation. Further it gives you geographical diversification too and the top 10 global funds available in India have given an average return of 22%, whereas Indian equities have been flat.

In the last 10 years in Asia, India has been the best performing county in 2007 and 2009. However, the year in between India was the worst performing country and our crash had been overdone, which resulted in a spike up the following year.

This year till date, the best performing funds are Japan and the US. Although, currently we have no way to invest in Japan, but there are currently 3 funds which have US dedicated investments, two of which started in the last one year. Hence in the last 6 months, the US funds have given the following returns:
  1. FT India Feeder Franklin US Opportunities Fund                  21.21%

  2. ICICI Prudential US Blue Chip Fund                                    18.25%

  3. DSP BR Flexible Equity Fund                                              17.23%

However, the standout global fund has been JP Morgan ASEAN Equity Offshore Fund, which has given a return of 23.54% over the last 6 months and 36% over the last one year. The major trading partners for ASEAN countries are other ASEAN countries and trading with Europe is just 1% of the GDP. ASEAN region is one of the few regions around the world where domestic demand is holding up well in a weak economic growth environment. The ASEAN region will continue to attract foreign investment seeking to take advantage of the consumption story. Indonesia and Thailand are in a strong investment led growth phase.

JP Morgan Greater China Equity Offshore also gave 21.75% during the last one year. This is inspite of the fact that the economic indicators coming out of China continue to be uninspiring. This is mainly because China has been underperforming in 2010 and 2011. China’s Price to book is currently at 1.6 times, which is at the lowest end of the valuations of the last 10 years.

Brazil is a commodity rich country and with the global economy not doing too well. HSBC Brazil fund gave just 5% return in the last one year. The HSBC Brazil fund price has not yet reached its launch price in April 2011.

There are other commodity stocks available – but these should be avoided until there are clear indications of a global recovery.

There is one thing to note – International funds are taxed like debt funds i.e. capital gains are payable.

In conclusion:

About 20% of your equity allocation should be in global funds to give you geographical allocation and also booster in returns due to rupee weakening. Hence I recommend half the amount be invested in US funds and most of the balance in the JP Morgan ASEAN fund and the rest in JP Morgan China fund.