Diversification Through globally... ?

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Permalink Reply by Sachidanand (Sacha) Singh on February 7, 2010 at 7:46am

One way of estimating risks in sovereign papers is CDS spreads. You can check it out from markit site. This sovereign spread can be used as a proxy for sovereign risk. Another way could be look up the ratings of the investee conuntry's sovereign debts. The point with the US is that it issues its debts in own currency and presumably can print any amount of it. Suppose President Obama devalues dollar in his avowed bid to double US exports over next five years? Just by itself, this should have little impact on CDS spreads or on the ratings of their sovereign papers as teh likelihood of timely payment of interest and repayment of principal is not affected at all, but it will be devastating for a foreign investor.

Beta of a global portfolio can be estimated by regressing the portfolio returns with those of an appropriately weighted global index - there are a few. The inherent impossiblity of creating a true CAPM market index implies one can very well create an appropriate index oneself if one subscribes to relevantreal time quotes.

Since most (perhaps all) of teh commodities are quoted in USD this gloable index should naturally be in USD. Presuming you would like to measure your returns in INR, you should adjust for teh different currencies by using USD/INR PPP rates.

These are my spur of the moment views and I am not certain by any means. Comments welcome.

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