Financial Dictionary: In risk management, the act or strategy of adding more investments to one’s portfolio to hedge against the investments already in it. Ideally, this reduces the risk inherent in any one investment, and increases the possibility of making a profit, or at least avoiding a loss. This may also reduce the expected return on a portfolio, but it depends on level and type of diversification. In general, broader diversification equates to less risk and less return.
In the past, most investors have had to content themselves with investing in local financial products. Local means being closer to market and, thus, able to make potentially necessary decisions with regards to the portfolio of assets.
But as Maggie Ng, CEO and founder of FinEX Asia, will attest there are opportunities to be gained in investing in financial providers overseas – provided of course that the investor is able to make informed analysis of risks associated with those financial products.
The financial landscape has changed considerably 10 years since the global financial crisis of 2008. McKinsey estimate that cross-border capital flows have shrunk by 65%, from US$12.4 trillion to US$4.3 trillion (see Figure 1).
Despite the decline, Mckinsey noted that financial globalization is not dead and that advanced economies and international financial centers remain highly integrated into the global system. The potential risks remain with capital flows remaining volatile.
In the report “The New dynamics of Financial Globalization” McKinsey point to new digital platforms, blockchain and machine learning as creating new channels for cross-border capital flows and further broader participation.
“Banks need to harness the power of digital and respond to financial technology companies or Fintechs, adapt business models to new regulation, improve risk management, and review their global strategies. Regulators will need to continue to monitor old risks and find new tools to cope with volatility, while creating a more resilient risk architecture and keeping pace with rapid technological change,” noted the consultant.
Fintech Innovation spoke to AGDelta’s CEO, Andrew Au, about the challenges that investors and financial advisors, must addressed as they consider the rewards that will come with cross-border investing.
He cited issues like local regulation, evolving RegTech innovations, and the emergence of regional passports such as the Asia Region Funds Passport, as considerations investors must look into when assessing the risk-rewards of cross-border investing.
By Allan Tan | 2018-06-11