Foreign portfolio investment is the type of investment that an investor has abroad. There are many benefits to having a foreign portfolio investment.
Foreign portfolio investment gives investors an opportunity to engage in international diversification of portfolio assets, which in turn helps achieve a higher risk-adjusted return. The global stock market operates in such a way that the factors that drive the London Stock Exchange at any given time are different from those that prevail in Taiwan, for example. This means that an investor who has stocks in different countries will experience less volatility over the entire portfolio.
Investors who have foreign investment portfolios have a broader credit base because they can access credit in foreign countries where they have significant investments. This is advantageous when credit sources available at home are expensive or unavailable due to various factors. The ability to get credit on favorable terms and as quickly as possible can determine whether a business executes a new project or not.
Benefit From Exchange Rate
International currency exchange rates keep changing. Sometimes the currency of the investor's home country may be strong, and sometimes it may be weak. There are times when a stronger currency in the foreign country where an investor has a portfolio may benefit the investor.
Access to a Bigger Market
Home markets in the United States have become very competitive, as there are many businesses offering similar services. Foreign markets, however, offer a less competitive and sometimes larger market. A business may make more sales selling shoes in one African country than in the entire U.S., for instance.