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Decoding International Stock Market Investments

This is a guest post. The opinions expressed by the guest writer and their provided writing are theirs alone and do not necessarily reflect the opinions of FightToFIRE. FightToFIRE is not responsible for the accuracy of any of the information supplied by the guest writer.
This work is the opinion of the writer. It is not the intention of FightToFIRE to “malign any religion, ethnic group, club, organization, company, or individual.”

With the disclaimer out of the way, it’s time to make room for a guest author. Gavan Smythe is the founder of iCompareFX. This website lets users compare the world’s best international money transfer companies across offered services and features. A father of two, Gavan likes devoting much of his free time to his family.

I’ve noticed that it’s not uncommon for people who invest in the stock market to look at international opportunities. Consider this – third country investors accounted for €6,295 billion of foreign direct investment stocks held in the European Union (EU) at the end of 2017. At the same time, investors residing in the EU accounted for €7,412 billion in foreign direct investment stocks held outside of the EU.

Is the Grass Really Greener on the Other Side?

There’s a long-standing notion that the international equity market tends to, more often than not, lag behind the American market. However, I feel that simply looking at index-based returns is not the way to go. If you look at stats from a company-by-company standpoint, a different story unfolds.

Data shows that companies that offered the best annual returns since 2009, each year, were predominantly non-American. In some years since then, 80% to 90% of the top performers have boasted of non-American roots. From the long-term perspective of investing in stocks, international markets certainly make way for lucrative opportunities.

Where to look?

If you live in the UK or elsewhere in Europe, and plan to invest to names such as Apple, Sony, Samsung, Toyota, or Amazon, you have no other option than to trade internationally. Incidentally, in some instances, you do not have to look far. For example, the luxury goods industry has a firm footing in Switzerland and France, home to companies such as LVMH, Richemont, and Kering.

Several prominent pharmaceutical companies are based out of Europe, some of which include Novartis, Novo Nordisk, and AstraZeneca. Nestle, one of the world’s biggest food companies, is listed on the SIX Swiss Exchange.

If you take a look at the American stock market, you will notice that the Standard & Poor’s 500 Composite Index is largely dominated by technology and consumer tech companies. Some that continue to find favour with investors include Alphabet, Nvidia, Amazon, Splunk, and PayPal.

Japan is home to a number of listed companies that specialize in robotics, with ones such as Fanuc and Murata continuing to build traction. Other Asia-based names that have caught my attention include Taiwan Semiconductor, SK Hynix, Alibaba, Sony, Weibo, Toyota Motor, Honda Motor, and ICICI Securities.

What About Risks?

Quite like other forms of investment, investing in international stocks is not devoid of risks.
However, I don’t agree with the common perception that foreign stocks are riskier when it comes to volatility. While this might be true in some instances, it helps if you exercise due diligence before investing. What you need to pay attention to include:

  • Political risk that might translate to economic problems
  • Currency risk arising from exchange rate fluctuations
  • Lack of regulations that may lead to fraud or manipulation

Opening an Account in a Foreign Currency

Some companies such as TransferWise and WorldFirst give you the ability to open accounts in multiple foreign currencies. This way, you may pay for your trades in the same currency, which does away with the need to pay exchange fees each time you carry out a trade. You may use such accounts not just to pay for your trades, but also to receive funds when you sell your stocks.

Conclusion

Investing in international stocks gives people an easy way to diversify their portfolios, and they still get to choose from an array of alternatives. In my experience, I have come across instances where some companies manage to make great inroads even in non-thriving economies. As an investor, I look more at companies that excel in their realm, as opposed to where they’re located.

Gavan Smythe

Founder at iCompareFX
Gavan Smythe is the founder of iCompareFX. This website lets users compare the world’s best international money transfer companies across offered services and features. A father of two, Gavan likes devoting much of his free time to his family.
Gavan Smythe

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