Investing internationally: Does it truly diversify?

In the world of investments, diversification is a widely endorsed strategy to mitigate risk and maximise returns. Yet, an equally critical dimension is geographic diversification, which involves investing in international equities. Conventional wisdom suggests allocating a third of your equity portfolio to foreign markets. Yet, our readers ask - does spreading your investments across different regions of the world truly deliver the promised benefits in today's interconnected global economy? Let's find out. The nature of equity across borders Whether investing in domestic or international equity funds, you're essentially putting your money into equities. On the surface, it might seem that the asset class is the same, be it a share of Tesla in the US or Tata Motors in India - after all, it is equity. But here's the nuance: even within the same class of assets, equities can behave very differently based on their geographic locations. The paradox of globalisation The digital age and globalisation have brought markets closer than ever. When Wall Street sneezes, it's not unusual for Dalal Street, or other global markets, for that matter, to catch a cold. Look at the chart, and you'll notice a striking pattern: during the 2008 'Global Financial Crisis', the markets seem to be moving together. Both the S&P 500 index and the S&P BSE Sensex index saw declines in eight out of 12 months. However, in those eight months, the S&P 500 generally weathered the storm better, managing smaller declines than the Sensex, with November as the sole exception to this trend. While it's true that crises can make global markets move in tandem temporarily, the long-term correlation isn't as tight as one might assume. Consider the instances when the S&P BSE Sensex experienced a downfall, particularly when the index reported cale