‘Despite 40-50% correction, international mutual funds can go down further’

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International mutual funds (mostly US focused) are down 30-40% from their peak but some analysts, MFDs and RIAs are still not comfortable recommending these funds to investors. They say the valuation of quality international businesses is still very high and the US economy is not in the right shape.

“The correction in Nasdaq is mostly due to a massive fall in stocks of new age businesses, which are facing cash crunch due to rising borrowing cost. Quality companies like Google and Facebook are still very expensive,” said Rahul Jain, Senior VP Research at International Money Matters.

Market data shows that despite a ~27% correction in Google’s stock price in the last 6 months, the IT giant is still trading at more than double the pre-covid price.

For Jain, valuation is not the only concern. He believes the US economy is likely to witness more pain in months to come, given the record high inflation.  

“We are seeing a 40-year high inflation. As a result, the FED had to hike rates by a steep 75 bps. This indicates the stress in US economy,” he said.

Vinod Jain of Jain Investments is also not convinced that the time is right for international investment, especially in the US. In fact, he is asking clients to redeem international investments and put the proceeds in a safer instrument.

“According to our internal valuation, the US market is still not attractive. We feel that there may be a lot more pain going ahead. Moreover, while there has been some price correction, the time correction is yet to happen,” Jain said.

Should investors wait further?

Keeping in mind that it’s impossible to time the market perfectly, this correction may be right opportunity for investors to start an SIP in an international fund, preferably in an US fund, say MFDs.

“I feel this is a good time to start international investment. I am recommending US and China focused funds to clients who can take that kind of an exposure,” said Rushabh Desai of Rupee With Rushabh Investment Services.

Babu Krishnamoorthy of Finsherpa Investment Services said he is considering recommending international funds to clients for the first time, thanks to the correction. “The valuations are getting into a comfortable zone. There are many US companies like Google and Facebook, which are operating in hundreds of countries and investors should possess these stocks in any which way possible,” he said.

Garvit Chaharia of Deeva Ventures has always been recommending international allocation to clients who have the right risk profile. “The biggest reason behind international investment is diversification. It helps bring down the overall volatility. Given the correction, I am even comfortable recommending a lumpsum investment now,” Chaharia said.

Analyst Rahul Jain may not be comfortable with the current valuation but even he suggests a systematic investment in international funds. “US has the biggest companies and hence you shouldn’t avoid the market completely. One should invest with a mindset that if the market goes down further, I will buy more units. The investment should be staggered,” Jain said.

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