Market crash: How and where can you invest overseas

Japan's yen currency broke the yin and yang of the global financial market on August 5, 2024. Nikkei 225, one of Japan's main stock index, plunged 12.4 per cent, its largest drop since 1987, on the back of the 'yen carry trade' crisis.

For years, investors have been using the 'yen carry trade' strategy, wherein they borrow money from Japanese banks at ultra-low to nil interest rates and invest it in high-yielding assets in other countries.

Essentially, this strategy worked as long as the yen, Japan's currency, remained cheap.

But the Bank of Japan's decision to ramp up interest rates by 15 basis points made the yen appreciate around 7.5 against the US dollar, as of August 5, 2024. The sudden strengthening of the Japanese currency spurred investors to wind up their trades.

Other threats

The US stock market has been rocked, too. Growing unemployment data has stoked recession fears. As such, the Nasdaq sank 3 per cent on August 5.

Couple that with Iran vowing revenge on Israel following the death of a Hamas leader, markets worldwide are facing a sudden squeeze on liquidity and excesses.

What you should do

Despite the instability, existing investors should stand pat and hold on to their investments.

Having 15-30 per cent of your portfolio in international markets—Nasdaq-100 is our top choice—remains an ideal strategy. It gives you exposure to some of the biggest companies in the world, including Alphabet (Google), Apple, Tesla, Meta (Facebook), Nvidia, Amazon and Microsoft.

For new investors, the choice to diversify the portfolio remains pretty limited. Most India-based mutual funds investing in overseas ETFs are a no-go, having hit the $1 billion industry-wide limit. However, there's a window of opportunity in Motilal Oswal NASDAQ 100 ETF. It is still accepting fresh investments and trading closer to its NAV.

There are two further options. They are:

• Domestic mutual funds investing overseas: There is a tiny window of opportunity here, as these funds have gone below the industry limit of $7 billion. Some funds accepting fresh investments include Motilal Oswal Nasdaq 100 FOF, ICICI Pru NASDAQ 100 Index and Motilal Oswal S&P 500 Index.
  
• Invest in ETFs through LRS (Liberalised Remittance Scheme): This option allows yearly investments of up to $250,000 (approx Rs 2.10 crore) in any foreign assets. Here, you can invest in foreign ETFs directly through platforms like Interactive Brokers or India INX. Many international and domestic brokers have tie-ups with US stockbrokers to act as intermediaries and execute trades. You can open an overseas trading account with them.
  One big knock against the LRS route is that it is more complex than mutual funds. Brokers impose restrictions on this method, including limitations on investment vehicles and trade numbers. So, use the LRS only if you can overcome these hurdles.

Also read: Keep calm and invest on