Should You Invest in a Foreign Stock Market?

Email  Print Print  

Education InvestingOne of the pieces of advice you are likely to receive about investing is that you need to make sure to diversify your portfolio.

However, diversification isn’t just about asset class and sector. Diversity also includes geography. For true diversification, you need to consider the where of your investments.

For some investors, it’s possible to do this by investing on a foreign stock exchange. A foreign market can provide you with access to different companies and opportunities.

What are the Major Foreign Stock Markets?

Most developed countries and emerging countries have stock markets that you can trade on — if you meet the requirements. Andrew Schrage is a former hedge fund analyst with experience investing in foreign markets. “The top five foreign markets to invest in so far for this year are the Philippines, Kuwait, Argentina, the United Arab Emirates, and Japan,” he says.

However, in terms of ease, Schrage recommends the London Stock Exchange. “It’s fairly easy to find a broker here in the U.S. who can offer insights and tips for how to invest effectively in the London Stock Exchange. It has also experienced gains somewhat similar to those of the New York Stock Exchange so far this year.”

Other popular foreign markets include:

  • Toronto Stock Exchange (Canada)
  • Frankfurt Stock Exchange (Germany)
  • Saint Petersburg Stock Exchange (Russia)
  • Hong Kong Exchange (Hong Kong)
  • Korea Exchange (South Korea)
  • Taiwan Stock Exchange (Taiwan)
  • Australian Securities Exchange (Australia)
  • BM&F Bovespa (Brazil)

There are also a number of stock exchanges owned by Euronext throughout Europe (Euronext merged with NYSE in  2007, and the result was the first global equities exchange), including locations in Amsterdam, Paris, Lisbon, Belfast, Brussels, and more.

Should You Invest on a Foreign Stock Exchange?

“Investors need to understand that volatility exists everywhere,” says Schrage. “Foreign stocks can often change course without warning due to civil unrest, political instability, and a host of other in-country factors.”

He also points out that there might be expensive transaction costs. Additionally, “you may also find yourself simply unable to gather much information about a foreign stock, as reporting requirements in foreign nations can differ greatly from those in the U.S.,” Schrage continues.

You should also be wary of liquidity issues that can affect your ability to sell investments bought on foreign exchanges, and be aware of the possibility of currency risk.

Theodor Tonca, a principal at Graham Theodor & Co., and organizer at the Vancouver Value Investors Club, points out that “one needs a larger than average margin of safety when investing in foreign locales.” Tonca agrees with Schrage that Japan is a good choice right now. “The Bank of Japan’s misguided monetary policy of quantitative easing has…helped push equity valuations much higher.” He also points to the fact that many Japanese companies listed on the Tokyo Stock Exchange have more than a decade of profitability behind them and little debt on their balance sheets. Plus, “in a lot of instances [these companies] pay a dividend to boot!”

While Tonca also suggests Malaysia as an interesting option, he also cautions those who aren’t experienced with reading balance sheets and understanding how to find a true bargain.

The good news is that you don’t have to go directly to a foreign exchange to add foreign investments to your portfolio. Consider your situation and the risks, and then decide if investing in a foreign exchange makes sense for you.


{ 9 comments, please add your thoughts now! }

Related Posts

RSS Subscribe Like this article? Get all the latest articles sent to your email for free every day. Enter your email address and click "Subscribe." Your email will only be used for this daily subscription and you can unsubscribe anytime.

9 Responses to “Should You Invest in a Foreign Stock Market?”

  1. We are invested in a number of foreign stocks!

  2. bloodbath says:

    I should invest in foreign markets but I don’t know how or I’m too afraid. I’ve been a conservative investor for most of my life and I’ve accumulated just enough to support my lifestyle until I kick the bucket so why test the waters now???

  3. admiral58 says:

    Correlations have moved to 1, but it’s still a good idea to get into foreign stocks, especially emerging markets

  4. Scott says:

    How is Japan’s exchange not on this list?

  5. Shafi says:

    Domestic or Foreign stock market has no difference. In either case, you just have to be diligent enough to make good decision for the long term.

  6. I think there should definitely be foreign stocks in your portfolio as the world economy is becoming more global. I would stick with mutual funds rather than individual stocks…unless it is a large company.

  7. Miranda says:

    “The top five foreign markets to invest in so far for this year are the Philippines, Kuwait, Argentina, the United Arab Emirates, and Japan”


    “Tonca agrees with Schrage that Japan is a good choice right now.” And then follows with reasons that Japan might make a good choice.

    The bulleted list refers to “Other popular foreign markets”

  8. I’m not comfortable investing in a foreign market. I feel like you should understand something before you invest any of your hard earned money on it, and frankly, I just lack the knowledge to be comfortable with a foreign stock market investment.

  9. mannymacho says:

    Maybe it was discretely removed because Japan’s market is tanking now 🙂

Please Leave a Reply
Bargaineering Comment Policy

Previous Article: «
Next Article: »
Advertising Disclosure: Bargaineering may be compensated in exchange for featured placement of certain sponsored products and services, or your clicking on links posted on this website.
About | Contact Me | Privacy Policy/Your California Privacy Rights | Terms of Use | Press
Copyright © 2016 by All rights reserved.