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Foreign-listed stocks are a good investment option

By Puneet Wadhwa
August 20, 2014 12:44 IST
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If you want to invest in foreign-listed stocks, you can make use of the current rally.

The Reserve Bank of India (RBI) recently raised the Liberalised Remittance Scheme (LRS) limit to $125,000 (Rs 75,00,000 as on August 19 with the dollar-rupee exchange rate of 60), without end-use restrictions except for prohibited foreign-exchange transactions.

US markets have run up over the past year, with the Dow Jones Industrial Average surging 12 per cent and the Nasdaq that hit a 14-year high on Monday gaining 26 per cent.

Ambit Investment Advisors Chief Executive Andrew Holland says, "Given where the liquidity is, I think the US markets could trend up.

But there are risks like geopolitical tensions. Till there is ample liquidity, these won't matter. Valuations for the US markets are rich. Nothing significant that can stop these from going higher. But it will not be a runaway rally."

In an 07 August report, Morgan Stanley highlights sustainability themes across global markets: climate change, water scarcity, waste management, food availability, health and wellness, improving lives and ageing population.

"The nature of the themes is such the value creation may emerge over the medium to long term. But investors may want to generate a positive return over a shorter period. So, we looked for attractive 12-month risk-reward profiles." Morgan Stanley maintains an overweight stance on China and Singapore and remains equal weight on India, Taiwan, Australia, Indonesia and South Korea in a report dated July 29.

It maintains an underweight rating on Thailand and the Philippines. HSBC has raised its weight for South Korea to neutral and lowered its rating on Malaysia to underweight in the Asian region due to the increased earnings risk and risk of rate increases.

It remains overweight on Indonesia and Thailand. It remains neutral on India as valuations look high. Herald van der Linde, head of equity strategy, Asia-Pacific, "There remains a risk of higher rates. Some reforms have been put in place but the impact on corporate earnings remains uncertain in magnitude and timing."

Mahesh Nandurkar, executive director, CLSA India, says, "India has been one of favourite emerging markets for foreign institutional investors (FIIs).

In 2014, $12 billion of net inflow has been there and this rate will continue as the economic growth becomes visible.

"But FII flows are as much a function of domestic developments as of global risk appetite. We do not expect big global hiccups but continue to monitor the situation. India is looking like a solid long-term structural growth improvement story."

Similarly, in the Asian region, HSBC has raised its weight for Korea to neutral and has lowered its rating on Malaysia to under-weight due to increased earnings risk and risk of rate increases though it remains over-weight on Indonesia and Thailand.

As regards India, it still remains neutral as valuations still look high. “There remains a risk of higher, not lower, interest rates. A positive is that some reforms have been put in place, but the impact on corporate earnings remains uncertain in terms of magnitude and timing,” Herald van der Linde, head of equity strategy, Asia Pacific, HSBC says.

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Puneet Wadhwa
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