US Freedom Capital's Deputy CIO, Arindam Sengupta, spoke on global diversification at the Mehta Fincon Global Investor Conference, Gujarat's biggest HNI investor conference organized by Mehta Fincon Services Ltd. on January 12, 2019.
The theme for the conference was 'Unveiling the Secrets of Wealth Creation' and featured some of the leading minds in the Indian financial industry, including Subramanian Swamy, Member of Parliament Rajya Sabha.
The topic of focus was centred around why diversification is such an important tool for wealth accumulation. Trends have shown that while global markets, primarily equities, have created significant wealth for investors over the past five years, these markets attract a fair share of volatility risk.
In fact, in Indian equity markets, volatility has been significantly higher over the past year due to a combination of global and local events such as Brexit, a hike in US interest rates coupled with a simultaneous reduction in QE, demonetization and state elections.
2019, as Sengupta explained, is expected to be another volatile year with national elections and global macro events posing increasing challenges to emerging market economies including India.
Amidst global economic uncertainty, the USD stands out as a preserver of wealth primarily due to its universal appeal as a 'safe haven' asset, with an increasingly 'risk off' global asset allocation seeing a shift in investments from emerging markets to developed markets.
Thus, investing a part of one's assets in USD, preferably in a less volatile asset class like fixed income, makes perfect sense to protect the wealth created in a surging equity market boom.
Sengupta went on to note, "Don't reinvest all your gains in the same volatile asset class which helped you create wealth initially but reinvest a part of the same in a stable and less volatile asset class backed by the strongest currency in the world, the USD.