With the plethora of potentially profitable shares available on the local bourse, why should investors consider investing in overseas stocks at all? The answer is as simple as it is complex: diversification.
Savvy investors well know that diversifying their portfolios enables them to avoid the proverbial “one basket for all their eggs”. But by investing in stocks listed in one’s home country alone, they may be said to be doing just that.
A growing number of investors are looking to international markets to beef up their portfolios, as they understand how overseas stocks open up a whole world of opportunities:
- Higher growth rates in emerging economies
- Fair-sized dividends from select stocks
- Help with portfolio risk management
- Diversification through different currencies
Investing in overseas stocks is a lot simpler than it may seem at first, particularly in Singapore — most everything can be done online, and the Singapore Exchange has a wide selection of overseas stocks to choose from. And while there are risks involved (to be discussed further on), the rewards may very well be worth it.
It’s a big (investing) world, after all…
Special requirements and restrictions notwithstanding, most stock markets in the world welcome foreign investors. Most Asian markets are particularly welcoming — investors can easily get a multi-market account (or an account that enables an investor to buy shares in several countries) for most countries in Asia from a stockbroker in Singapore.
Multi-market accounts also come easily for investing in North America and Western Europe. For investors who are just starting to explore overseas stocks, it’s a good idea to begin with stocks in these regions as well as Asia’s developed economies.
How To Get Started
The easiest way to get one’s feet wet in the world of international investment is through one’s local stock exchange. Many companies that have foreign ownership or are based abroad list on the SGX because of its size and its liquidity, or because their headquarters are in Singapore.
Coursing an investment through the local bourse is easier because
- A local stockbroker speaks the same language
- Transactions will be carried out in the same time zone
- Transactions and account funding will most likely use the local currency
- It is also generally cheaper than investing directly into an overseas market
Local stockbrokers in Singapore are generally able to hook Singaporean investors up with all the major markets in the region, as well as the rest of the world.
But what if you want to buy shares of a company that isn’t listed in your home country? This is where having a multi-market account particularly comes in handy. In Singapore, an investor wishing to invest in overseas stocks will also need to have an account with the Central Depository (CDP).
Another option would be to open an account directly with an overseas broker, which is also a lot more common (though not necessarily easier) than one might think.
International investors ought to know…
There are quite a number of things an investor who is looking to include overseas stocks in his portfolio would do well to be aware of.
- Registering with the authorities of certain countries might be difficult in terms of how long it takes and the fees that have to be paid. Unless an investor intends to trade on a regular basis in such a country, the time and cost involved might not be worth it.
- Mutual funds or exchange traded funds might be a better option for investing in stocks from emerging economies because of the risks and costs involved.
- There are extra charges when buying and selling overseas stocks, which make the share prices go up. Investors will likewise have to pay their brokers higher fees, and buying in local currency will also involve paying for the conversion to the necessary foreign denomination.
- An investor might need to make international money transfers to send funds to his overseas stockbroker if he decides to get one. If an overseas stockbroker is asked to buy shares in more than one country, that broker must have accounts in each country — an investor wouldn’t be able to buy shares in a country where the broker has no account.
- If an investor’s stockbroker deals with market makers, or middle-men that buy and sell shares from stockbrokers, the fees might be higher and the stock prices might be less competitive. Market makers do give stockbrokers more flexibility, though, and might be able to help an investor get shares that a stockbroker might not have ready access to.
- An investor might have to be specific about the countries he wishes to invest in. Some stockbrokers may be able to help buy shares in a particular country, but not in all of that country’s cities or exchanges.
- An investor might also have to check whether his home country’s laws prohibit him from investing in certain other countries. Even if those countries might welcome his investments into their markets, his own country might not allow him to. Some countries also only let investors from specific countries invest in their stock exchanges.
- Lastly, there might also be tax requirements to consider, or forms to fill out when buying overseas stocks, depending on their country of origin.
Extra caution for these caveats…
Though overseas stocks can round out an investor’s portfolio quite nicely, financial advisors usually tell their clients to devote only about 5 to 25% of their funds in international investments. This is because of the various risks that come with investing abroad.
- Some countries have special political risks such as a lack of awareness of investor rights, or strict government control over the news and information. Other countries also have civil unrest such as rioting or terrorist attacks that could be bad news for investors.
- Other countries might also have problems with their currency that could affect the value of investments (and ultimately their returns). An investor with shares in or from these countries will have to keep an eye on the news as well as local currency markets.
- Still other countries come with extra costs because of commissions, charges or new legislation affecting taxes. An investor might be better off sinking his funds into a local mutual fund instead of an overseas one with a lot of fees to be paid.
- The stock markets in some countries can’t handle large volumes of securities all at the same time. This means that trading won’t be as fast or easy to carry out. Investors would do well to check an overseas market’s liquidity before jumping in.
- And finally, some countries have certain quirks when it comes to allowing foreign investors to buy shares on their stock exchanges. The International Investor offers a list detailing these countries’ individual requirements and how an investor might meet them.
Discover spiking overseas stocks!
Investors looking for overseas stocks naturally gravitate towards Singapore, as more and more overseas companies come to be listed on the SGX as their gateway into Asia. Of the 766 listed companies on the SGX, 40% are of foreign origin, all of which are required to meet Singaporean standards for securities, accounting and corporate governance.
Spiking enables investors to follow these companies as well as the top stock spiking on the SGX mainboard. Get up to the minute updates as overseas stocks and more change hands between over 8,000 sophisticated Singaporean investors. Check out the Spiking app homepage and discover spiking overseas stocks to fit any investment mix today.