IntroductionForeign investment is no longer new in the 21st century, this is because of the growth of the global economy as a result if globalization. The communication infrastructure of the modern day cannot be compared to the communication platform that was available in the past five decades. The television, the radio and the internet have increased information dissemination from one place to another within a very short time. The technological revolution has ultimately varied the way business is done and the stock market has not been left out. The stock market in the US has been lucrative over the past few decades; the modern decline in the relative earnings of the pure US stock can be attributed to globalization and transfer of information from one place to the other.
Information dissemination is vital for decision making process and especially in the stock market. This analysis focuses on the benefits of international investment equity which forms the basis of the recommended financial strategy based on the selected market scenario. International investment equity generates unique variables not available in the local market; this includes diversification, meaning reduction in risks and increase in expected returns, better investments options are also discussed in details.
The strategy proposed to the risk averse American is based on the unique market conditions of the three stock makers, United Kingdom, Japan and Hong Kong. The rationale for the decision making is based on the amount of risks associated with each market and hence the creation of a balanced and a diverse portfolio. Benefits of international equity investmentAs compared to the past decade, the US market is no longer lucrative with strong stock market.
Its share of global stock market has declined steadily since 2002; the US domestic market is therefore no longer the dominant and the most lucrative as before. Based on this fact, it is no longer wise to invest only in the US domestic market. More so, studies reveal that investment in mix domestic stock market and foreign market produces better returns as compared to investing on a pure domestic market alone. Globalization is also another major factor that has fostered the growth of international equity investment.
The growth in communication infrastructure means that information from one end of the world can reach the other within seconds. Live streaming of different events happening in different regions spurs different market reactions and lead to either increases or decrease of market share price. The growth and the changes in the stock market can be attributed to the changes in technology; this is simply because technology facilitates easy transfer of information from one point to the other. The growth of the internet has particularly enhanced the dissemination of information from one point to the other within seconds.
This has thus increased the efficiency of information which is necessary for decision making in the liver market trading. In fact, most international stocks have turned online in trading; online forex is a good example of this form of stock International investment decreases the risk of investment because of risk diversification. This is because of the varied business cycles in different countries; this reduced the risk and also increases the liquidity of the investment. As an example, when the US market is under recession, it is difficult to convert the investment portfolio into liquid cash, this will not be the same case of the investment is diverse since different regions have varying market and business behaviors.
A divers investment also has a higher rates of returns as compared to a single market stock. This is evident from the fact that there has been a significant decline in the US equity premium over the past four decades. This can be attributed to globalization or the growth of other nation’s economies, Asia and specifically China is a good example of a developing economy that has seen its growth of GDP to more than $4 trillion.
This growth in itself has shifted the market to Hong Kong the main gateway to mainland China.