Hedging against local risks through global markets

Nigerian Stock Exchange building in Lagos, Nigeria.<br />REUTERS/Akintunde Akinleye

Cross-border capital investments play an important role in the scaling of high-growth companies, as such, foreign investors attracted by new opportunities and new markets, are investing outside their home country at growing rates.
In turn, start-ups welcome this foreign capital, expertise, and networks that accompany cross-border investments.

Over the years, companies have been looking for new procurement channels, often by creating subsidiaries abroad, outsourcing offshore or opting for foreign suppliers.

This enabled them to benefit from cheaper labour and lower production costs in less industrialised countries. This trend has been accompanied and sustained by a smoothing of the quality standards that can be achieved in different parts of the world.

From a portfolio management perspective, investing in foreign companies is a way to diversify, and helps in risk management through a wide variety of investments within a portfolio.

A diversified portfolio contains a mix of distinct asset types and investment vehicles in an attempt to limit exposure to any single asset or risk.

The rationale behind this technique is that a portfolio constructed from different kinds of assets will, on average, yield higher long-term returns and lower the risk of any individual holding or security.

Diversification strives to smooth out unsystematic risks in a portfolio, while the positive performance of some investments neutralises the negative performance of others.

Also, an International portfolio allows investors to further diversify their assets by moving away from a domestic-only portfolio, which enables investors to achieve a high level of risk reduction through international diversification.

To this end, Chaka, a global trading platform designed to offer customers access to Nigerian and global financial markets provides foreign investment options to hedge against local risks and vice versa.

The technology-enabled platform referred to as a digital ‘Investment Passport’ allows users to invest in stocks listed on NASDAQ, the New York Stock Exchange, and the Nigerian Stock Exchange offering over 4,000 assets and indexes from companies such as Apple, Alibaba, Google, the S&P 500 index and many more.

On the rationale behind creating the platform, the Chief Executive Officer of Chaka, Tosin Osibodu, said: “With booming growth in many nations around the world, investors can now own a stake in the growth of other economies. Yet, for many Nigerians, this is a daunting task. We created Chaka to fill this gap, and likewise, give the global community access to local capital markets.”

He added, “Our goal is to provide premium borderless trading and investment opportunities for Nigerian professionals and investors.”

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