In an increasingly connected world, savvy investors are looking beyond domestic borders to diversify their portfolios and capitalize on global opportunities.
Here the Investing News Network explores how North American investors can access international markets, from simple methods like exchange-traded funds (ETFs) to more complex approaches involving direct foreign investment.
Please note that this article is written with a focus on North American investors and may not fully account for the unique financial regulations, tax laws and investment practices of other regions.
However, investing in foreign markets also exposes investors to risks. The value of foreign investments can be affected by currency fluctuations, and return on investment may be offset by transaction costs. Market volatility arising from political and economic instability in foreign markets can also negatively impact a stock’s performance.
Moreover, international investment involves navigating different regulatory frameworks and the potential unavailability or unreliability of information about foreign enterprises and markets compared to domestic ones. This difference poses a significant challenge in making well-informed investment decisions.
Johnston continued:
While global investing may sound complex it can be relatively straightforward for North Americans.
Some differences between ETFs and mutual funds make them more well-suited to individual investors. Mutual funds, unlike ETFs, do not trade on stock exchanges, and their prices are calculated once a day after the markets close. ETFs can also be bought and sold in any amount, whereas mutual funds often require a minimum investment. Furthermore, mutual funds are only required to disclose their holdings once every quarter, while ETFs disclose their holdings daily. Investors generally pay less in management fees for ETFs than they do for mutual funds.
Direct foreign investing is another avenue that is primarily undertaken by experienced investors, high-net-worth individuals or private equity firms with a deep understanding of global markets. It’s a complex process accompanied by tax implications and other challenges that require specialized knowledge and expertise.
Establishing a brokerage account through a local firm, such as Fidelity in North America, or a foreign brokerage account in the target investment country, like Degiro in Europe, or Saxo Markets in Asia is one way to get started. Sometimes, foreign companies list their shares directly on US exchanges through initial public offerings.
Investors can also access foreign stocks through global exchanges. One of the most well-known is the MERJ Exchange, a multi-market, multi-currency platform headquartered in the Seychelles. Others include the Nordic Stock Exchange, which operates in the Nordic and Baltic countries; the Johannesburg Stock Exchange, which lists companies from various African countries as well as some international stocks; and the Euronext, a pan-European exchange that primarily operates in the European Union but includes non-member the United Kingdom.
For example, until recently the Japanese yen had a very low interest rate compared to the US dollar. Investors could borrow yen, convert it to dollars and invest in US assets that yielded higher interest rates.
Global investors must understand and comply with various securities regulations across different jurisdictions.
Other industries are subject to special regulations that could impact operations and profitability. For example, pharmaceutical companies must navigate multiple rounds of testing and obtain approvals from various regulatory bodies, resulting in a lengthy process to bring a drug to market. While success can lead to substantial profits, these regulatory hurdles can also pose risks to potential investors.
Whether or not you’re a seasoned investor, understanding the dynamics of global investing, and key considerations like the risks and advantages of dabbling in international stocks, is crucial to making informed decisions and potentially reaping the rewards of a diversified portfolio.
Securities Disclosure: I, Meagen Seatter, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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