International portfolio diversification from Russian investor viewpoint

Date
2011-04
Journal Title
Journal ISSN
Volume Title
Publisher
The British University in Dubai (BUiD)
Abstract
As 1998 crisis consequence in Russian Federation, most of Russians lost confidence in investment products. Moreover, it made Russians reluctant to invest in the capital markets, they preferred to keep savings in bank deposits. In 2005, a share of 55.5% of Russian savings was deposited to bank accounts, 30.5% kept in cash, only 14% invested into the capital markets. The abundant liquidity was not efficiently utilised. This paper determines whether it is better for Russians to invest domestically or internationally. This paper analyzes how risks influence an investment portfolio of stocks representing developed and emerging markets. Portfolio comprises five developed markets. Analysis covers returns statistics, correlation matrices and efficient frontier of 14 sets of varying indices weightings. This gives comparison between domestic only portfolio (exemplified in emerging markets), international portfolio (exemplified in developed markets), internationally diversified portfolio (emerging and developed markets). Comparison findings were based on literature reviews of international portfolio diversification, emerging markets and exclusively for the first time the Russian capital market. Reviews indicated that international portfolio diversification from a Russian investor point of view is an untapped area. This paper demonstrates how to maximize gains at a given level of risk and unveil opportunities for converting foreign exchange risks into potential gains.
Description
Keywords
international portfolio, Russian Federation, emerging markets
Citation