How To Start Investing in Overseas Stocks
Many Singaporeans invest in the domestic market but are quite wary about investing overseas. Investing in companies such as Facebook, Alibaba, Cathay Pacific, Nestle or News Corp, seems like a far-fetched idea. This is because of the fear of the unknown and also an uncanny comfort with the home market.
What does investing in overseas markets mean?
Simply put, investing in overseas markets means buying stocks and assets of companies outside Singapore. Now does it mean investing only in trophy companies, like Facebook and Apple? Yes and No.
It can also mean investing in emerging markets that are fast becoming the drivers of global growth. Emerging economies are growing at a breakneck speed almost two or three times faster than developed nations such as the US, according to estimates by the International Monetary Fund.
Prudent investors are advised to look for investments in emerging markets that show high potential.
If you are wondering which markets these are,Morgan Stanley’s Emerging Markets Index mentions Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.
Today, more and more investors are investing in overseas markets.
The current scale of operations
Singapore investments surpassed Chinese investments in U.S. commercial property by $1 billion in 2017, a clear indication of the steady rise of the nation’s global investments.
The market is experiencing a meteoric rise, so make the most of it. By missing out on foreign markets you are missing out on the opportunity to ride on the crest of wave fueled by many corporations and countries. The Singapore stock market is irrefutably one of the most mature, diversified and self-stoking in the world, but investing abroad helps reduce correlation, which in turn reduces risk. Also, many foreign markets are more affordable.
Taking the first step
When starting on your investment journey, keep in mind that you are doing the same thing that you were doing before, it’s just that you have cast a wider net. You have an array of options to choose from. According to Dollars and Sense, compared to the market capitalization of SGX, the New York Stock Exchange (NYSE) is close to 30 times larger with over 2,400 listed companies, the London Stock Exchange (LSE) is nearly six times larger with 2,500 listed companies and the Hong Kong Stock Exchange (HKEX) is five times larger with nearly 2,500 listed companies.
How to start it
A guide for beginners
There are many reputable brokerage houses in Singapore, and the majority offer the option to invest in overseas stock markets. Although you can also open an account in a foreign brokerage market, it is always recommended to use your local brokerage account, as it is more simple and much more convenient. Plus, you can use the same account for investing in domestic as well as overseas stocks.
If you are intending to invest in overseas stocks, you want to choose a brokerage account that provides you access to multiple markets, not just one.
For example, Dollars and Sense tell you that OCBC Securities enables you to trade on 15 global exchanges, including the NYSE and Nasdaq in the US, the HKEX in Hong Kong and the Bursa Malaysia, just as easily as they would for Singapore-listed stocks on its iOCBC online platform and mobile app. Customers can gain access to even more global exchanges by calling their OCBC Securities Trading Representative.
A word of warning
Once you have made up your mind to start investing, there are two questions you need to answer. One – how much should your international exposure be? Second, what should you invest in?
For the first point, diversification is the key.
You should not fall into the home bias. Of course, you would be more comfortable with investing in home stocks, but remember, at times the foreign stocks may give you better returns. You should have a globally diversified portfolio. The principle of diversification, according to Professor Lewis of Wharton, is that a well-diversified global stock portfolio, can potentially either cut your risk by a few percentage points a year or improve returns for the same level of risk as just holding domestic stocks by perhaps half a percent a year. The exact numbers do depend on your assumptions and time periods, but this is about as close as you get to invest in a free lunch. Yet, most of the investors do not take advantage of the connected world and stuff themselves up with their home stocks.
Second, what you zero in on depends on what your risk appetite is. Instead of investing in large trophy assets, invest in small and niche assets that are likely to be lucrative in the long run.
With Singapore on the road to recovery, Singaporean investors will continue to see-saw between domestic and overseas investments. And if you wish to ride this road to recovery, spread your portfolio with some investments cherry-picked from the overseas market.