Security Analysis And Portfolio Management

1. Global Investing
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT
Presented By: NidaAli

2. INTRODUCTIO
N
Globalinvestinginvolvesselectingglobalinvestment
instrumentsaspartof ageographicallydiversified
portfolio.Peopleofteninvestinternationallyto
increasethediversificationof theirportfolioand
spreadinvestmentriskamongforeignmarketsand
companies.

3. 20th Century
First Wave of
globalisation
21st Century
Second Wave of
globalisation
2003
Indian citizens have
been allowed to
invest abroad.
Mutual Fund ~$25k
2020
One can investupto
$200,000.
H I S T O R Y

4. BENEFITS AND RISKS
BENEFITS
Attractive
Opportunities
Diversification Benefits
RISKS
Political Risk
Currency Risk
Custody Risk
Liquidity Risk
Market Volatility

5. FOREIGN INVESTMENT RETURN MEASUREMENT
The realized rupee return for an Indian resident investing in a foreign
market depends on the return in the foreign currency as well as the
change in the exchange rate between the foreign currency and the
Indian national rupee ( INR). Formally, the rate of return in
INR terms from investing in the ith foreign market is as follows:
R(i,INR)=[1+R(i)][1+e(i)]-1
=R(i)+ e(i)+ R(i)e(i)
where,
R(i)-> Foreign currency rate of return in the ith foreign market
e(i)->Rate of change in the exchange rate between foreign currency
and the INR

6. FOREIGN INVESTMENT RETURN MEASUREMENT
Example 1
Raghuram has just sold shares of British Airways that he purchased a
year ago and earned a rate of return of 10 percent in terms of the
British pound. During the same period, the British pound appreciated
3 percent against the INR. What is the realized rate of return in
INR terms from this investment?

7. The risk of foreign investment, measured in terms of variance, is:
Var[R(i,INR)]=Var[R(i)]+ Var[e(i)]+ 2Cov[R(i),e(i)]+ Var
where,
Var[R(i)]->Variance of foreign currency rate of return
Var[ e( i)]-> Variance of the exchange rate change
Cov[R(i),e(i)]->Covariance between the foreign currency rate of
return and the exchange rate change
Var-> Reflects the contribution of the cross- product term, R(i)e(i),
to the risk of the foreign investment
FOREIGN INVESTMENT RISK MEASUREMENT

8. FOREIGN INVESTMENT RISK MEASUREMENT
Example 2
Mahaveer is considering investment in the shares of General Electric.
The variance of the US dollar rate of return from General Electric is
150 percent and the variance of the exchange rate change is 30
percent. What covariance between the US dollar rate of return
on General Electric and the exchange rate change will result in a
variance of 100 percent on the rupee rate of return from General
Electric? Ignore the cross- product term.

9. Capital Asset Pricing
Model
Replace the domestic
market portfolio with the
world market portfolio
and measure beta
relative to the world
market portfolio.
The model does not take
into consideration
capital barriers, taxes,
transaction costs etc.
Arbitrage Pricing
Theory
i t can incorporate special
risk factors that arise in
internationa
l investing.
Factors included are
world stock index,
domestic stock index,
Currency movement factor
and industrial sector
index.
Expected Return in the International Capital Market

10. GLOBAL FACTORS
Increase in
cross-
border
trading
Multipl
e
listing
Internet
Cross-
border
mergers and
acquisitions

11. DEVELOPED MARKETS
Domestically-oriented companies
Multinational Companies
American Depository Receipts (ADRs)
Global Depository Receipts (GDRs)
Currency denominated bonds
EMERGING MARKETS
Close-ended mutual funds
Open-ended index funds
Exchange-traded funds
Individual Investment

12. HOW TO INVEST?
To invest in equities abroad:
1. a bank account with a bank that
allows foreign remittances and an
account with a domestic broker who
has a tie up with a foreign broker. Or
An account with a foreign broker.
2.Transfer the investible amount to
your brokerage account by filling up
Form A2.
Buy foreign exchange-traded fund
(ETF) listed on an Indian stock exchange.

13. GLOBALMARKETSTRACKING
Domestic Indices e. g. Dow Jones,
FTSE 100 , DAXetc.
MSCI (Morgan Stanley Capital
International) equity indices:
The MSCI World Index
The MSCI EAFE (Europe,
Australasia, Far East) Index
The MSCI Emerging Markets
Free Index.