How can regional diversification benefit your portfolio?

Regional diversification in investment is like not putting all your eggs in one basket, but instead, spreading them across different baskets in different areas of the world. Imagine you have money to invest, and you decide to put all of it into companies based solely in the United States. If the U.S. economy experiences a downturn, your entire investment could be at risk. Now, if you practice regional diversification, you might invest in some U.S. companies, some in Europe, and some in Asia. If the U.S. market faces challenges, investments in Europe and Asia could help offset potential losses, providing a more balanced and resilient investment portfolio.

Investing your money in different countries is a bit like having different teams in a game. If one team is not doing well, the others can still help you win overall. It's a way to make your money more secure and increase your chances of success.

From the perspective of an executive director of a nonprofit music school, regional diversification in investment strategies can be paralleled to diversifying the school's programs and collaborations. Just as investing in various global regions mitigates financial risks and leverages different market strengths, a music school can benefit from incorporating diverse musical traditions and educational approaches from around the world.By integrating a variety of musical styles and teaching methods from different countries and regions, the school can enrich its curriculum, attract a broader student base, and enhance its reputation. This approach can also provide students with a more comprehensive and global understanding of music.

Investors not just investing in their home country have began to diversify into different countries. Different countries offer varied opportunities. Emerging countries having a higher growth rate can benefit your portfolio with great companies & managers outlook. Developers economies like USA provide a safe heaven in currency terms. Interest rate arbitrary opportunities & underlined currency overlay between 2 economies can provide a hedge to the portfolio as well. Economies revival, growth sectors, stimulus or PLIs in different countries for specific sectors can boost return. Invest in economic whose currency appreciates against yours can hedge you agsinst inflation. Great arbitrage opportunities within countries.

To make it simple, diversification is a strategic and technical method of spreading resources and monies across different asset classes. Regional diversification is doing the above within the context of regions across the globe. Investing and diversifying investment into other regions influenced by certain key factors.

The US comprises 60% of the FTSE All-World Index and FTSE also maintain monthly investor stats on all the country indices. Over the past 5 years, thru to 31 Oct, USD total return performances across the world varied from FTSE Denmark up 140% on 18% annualised volatility to -12% for FTSE Thailand on 23% annualised volatility. The FTSE USA Index was nestled right in the middle of the leaderboard with a 68% total return on 9% annualised volatility. So there is a history of differentiation, yet is also important to understand the sector composition of the indices along with their big economic drivers.

Regional diversification is important on different levels. - Helps to manage risk and mitigate losses - Facilitates volatility management in the market - Enables equitable growth - It provides long term financial sustainability and - Helps to set future financial goals

By investing in different regions, you spread your money across markets with potentially uncorrelated economic cycles. This means that if one region experiences a downturn, it's less likely to affect the entire portfolio simultaneously. This diversification helps mitigate the impact of regional risks like economic crises, political instability, and natural disasters. It also offers a hedge against currency fluctuations. When you invest in different currencies, you can benefit from fluctuations in exchange rates, potentially offsetting losses in other areas of your portfolio.

I take no notice of sector, industry or country weightings. The country or domicile of a company is a very imperfect guide to where it derives its revenues, and profits. Example of Nestlé, the biggest Swiss company. It just derives 2% of its revenues from Switzerland. Yet, it is one of the best compounders over the last 30 years. Another advantage of investing globally is the ability to contrast and evaluate growth rates and valuations of firms from other geographies. Some of the companies we want to invest in get a large amount of their revenue from developing countries. This allows us to reap some of the benefits of exposure to new economies (mostly growth), while also benefiting from the governance framework of a developed market.

To be able to do this, investor must have a technical skillset from price action to technical indicators usage. For example using a volume indicator like OBV (On-balance volume) will help to have a level of insight on the volume of the asset class of interest in the region. MACD will help identify momentum of the trend direction of the price movement. RSI will give an estimated highlight of over-buying and over-selling in the market. There are more indicators to help for different reasons and strategy adopted also matter in this.

Always keep in mind one thing: Keep it simple. Best technical tool to focus on in regional diversification is relative performance and its trends. Graph the ratio of e.g. US vs rest of world indices. In case its trending up, increase the relative exposure to US, id down decrease it.

In addition to Relative Strenght Indicators, which must be customized for the regions and their Intermarket Realtions, Leaders and Laggards must be determined for the category of the regions. Having an ETF is an advantage for comparing regions, watching this ETF's aftermarket or building a custom indicator or adding a signal from them can be used.

Pick a technical indicator that you know how to use and how to interpret first. Then apply that to the relative strength of different regions. For example use the 150-day or 200-day moving average.

TA helps to select different geographical regions for diversification (e.g., North America, Europe, Asia). technical analysis tools (charts, indicators) specific to each region's assets (stocks, indices, currencies). For example, use unique indicators for analyzing Asian stocks versus European stocks. Analyze region-specific trends, support/resistance levels, and chart patterns for each market to identify potential opportunities or risks. Compare the relative strength of assets within each region using technical indicators to determine which regions or assets might be outperforming or underperforming.

Challenges to face this type of diversification is of high potential which can render the investment to almost a neck-breaking decision. - Political instability can be a major challenge as it can tends to threat economic indicators. - Regulatory factors: Every region with different regulations and some region may not be palatable for once diversification plan. - High operational cost: In a third world country for example, unstable power supply can frustrate investments and drag a diversification plan into a real time drawdown. There are many challenges, it is good to know the region and investigate the potential challenges and evaluate the risk involve if it is bearable before diversifying.

The main challenges in regional diversification are geopolitical tensions and investing without a deep understanding in the macro economic environment of the region where the investment is being placed. Additionally, investors should know tax regulations and treaty benefits to support the decision.

One major challenge is to be ready that some regions may (significantly) underperform for a prolonged periods of time. Its not easy to keep diversification intact in such a scenario.

From personal experience, I was CMO at a company that had the fastest trading in Brazil (keeping this above board) and we decided to mirror the same World Cup party we did in New York in Brazil and we decided to buy items in bulk to "save money." We shipped everything to Brazil only to learn the local hands refused to pick up the goods because the taxes where higher than the total value.

The classic trap in regional investing for American investors is falling into a liquidity trap. For example, try to trade on the Luxembourg exchange and get caught not being able to execute a sell order. Another trap is falling afoul of rules for governments that like to make rules haphazardly.

Some challenges can not be overcome by mere research and historical data because nobody knows the exact date a particular natural disaster will hit a region and such event is a bearish for a region and its investment. What we can do is to study the economic data of the region, the cultural and market difference The standard and cost of living there. Determine the operational cost of the region Be aware of the potential communication challenges and way to manage them with multi-lingual employees for example or indigenous expert with knowledge of the business. These are some of the most crucial challenges to overcome. specification depends on regions.

I take a global perspective because it allows us to compare companies across listing venues and geographic domiciles. Investing beyond your borders can help result in attractive performance in the long run. Global companies are not bound by geography—not in where they are headquartered, nor in where they derive their income—and reflect an opportunity set for investors that is meaningfully distributed across major regions.

regional diversification is a strategy that can significantly reduce the overall risk of an investment portfolio by lowering its correlation to any single market. This approach involves spreading investments across different regions, helping to offset losses in one region with potential gains in others. The example provided illustrates how a diversified portfolio can be less affected by a downturn in a specific market compared to a concentrated portfolio. While it doesn't guarantee immunity from losses, regional diversification offers stability over time.

Additional benefits include the potential for higher returns due to diverse economic conditions, hedging against currency fluctuations, and exposure to a broader range of investment opportunities across various industries and companies globally. Overall, regional diversification is a valuable strategy for investors seeking risk reduction, potential return enhancement, and broader market exposure.

Regional diversification might not be for everyone. Yes it can improve potential opportunities and drive profit but it requires experience because its risk exposes. We can't grow without taking risk but you need to understand what you are willing to risk and how much exposure you can allow especially in regions or countries you have not much experience or information about. Best to start small, diversify grow your knowledge and information about areas with better opportunities and increase investments in those areas