Guide to Investment Strategy by Peter Stanyer & Stephen Satchell

Author:Peter Stanyer & Stephen Satchell
Language: eng
Format: epub, azw3
Publisher: PublicAffairs
Published: 2018-05-08T04:00:00+00:00

FIGURE 8.9 Who needs international equity diversification?Volatility of equity investments from a US, Chinese and Indian perspective % per year

Note: “Greater China” is represented by the MSCI Golden Dragon Index, which includes China, Hong Kong and Taiwan.

Source: Authors’ calculations using MSCI indices

Figures 8.10 and 8.11 show movements in correlations of domestic and international equities from the perspective of US and UK investors. The message that emerges is that in benign times (the mid-1990s, ahead of the financial crisis, and in the years following 2014) rolling correlations between domestic and international equities (and especially with emerging market equities) can be reassuringly low. However, in 2014–15 the impact of the unusual decline in oil prices, and its differential impact between countries was also a factor. In bad times though, the reasonable expectation is that correlations (and volatilities) will increase, but even then, international equities should still provide valuable diversification benefits.

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