Empirical literature suggests that sector allocation might be a more effective approach in gaining diverse exposures in the global equity market compared to country allocation due to the growing integration of economic activities amongst countries. In addition, sector allocation often provides unique exposures to a variety of investment styles (Hsieh and Hodnett, 2012).

Discuss the pros and cons of international diversification. Pay special attention to the recent global financial market crisis, geopolitical climate, and the effect of economic integration. 25 marks