Whoever said, “Don’t put all your eggs in one basket” clearly did not anticipate how grocery shopping would be done in the modern day. But there’s still a lot of wisdom in that statement, especially when it comes to investments.
For the smart investor, diversification is key. And beyond just putting money into various investment products, diversification can also mean investing in overseas stock markets.
But why should we even consider overseas stock markets? Aren’t there more than enough investment opportunities in Singapore?
Investment isn’t a traditional marriage, so there’s no need to be exclusive. There are several reasons why you should consider overseas stock markets:
1. Participate in the success of companies that you support on a daily basis
Do you drink Starbucks on a daily basis? If you do, you’re probably spending at least $2,000 a year on that caffeine kick. But other than that, you’re not getting anything back, are you? Except maybe a worrying health report.
If you had invested an equal amount in Starbucks’ stock, you would have enjoyed returns far more eye-popping than the caffeine jolt from an espresso shot, seeing as Starbucks’ share price has almost tripled over the past five years.
Why is it a good idea to invest in companies you support? Because if you’re a fan, you already believe in the company’s products, and that’s usually a good sign that the company will continue to do well. But to do so, chances are, you’d have to invest through overseas stock markets. For instance, some of the more recognisable companies out there – think Apple, McDonald’s, Facebook – are listed on the New York Stock Exchange. (In case you’re curious, Apple is up more than 30%, McDonald’s more than 20% and Facebook more than 40% so far this year).
Of course, I’m not suggesting blind trust either. You should still study your favourite company’s financials and make sure that it is generating healthy returns for shareholders.
2. Protect yourself from the ups and downs in the global markets
Stock markets around the world move up and down constantly – but not necessarily in tandem. Even if the Singapore market is slumping, there could be other markets out there setting new highs and vice versa.
Case in point: Singapore’s Straits Times Index fell by about 15% in 2015, as it got weighed down by China’s stock market correction, falling oil prices and other gloomy news headlines. It would have been a challenging year for investors in the Singapore market – unless they had also invested in markets such as Japan, which appreciated by almost 20% that year.
Just like how you can reduce your portfolio’s volatility and risk by investing in companies across various sectors, you can do the same by spreading your investments across different global markets.
3. Invest in markets that have greater liquidity
Depending on the kind of investor you are, you might appreciate when a market has more volume. This means that more investors are buying and selling on a daily basis. There are some stocks in Hong Kong, like Tencent for example, that have daily average volumes that exceed the total trading volume of entire stock exchanges in Asia.
This level of liquidity makes it much more convenient to buy a stock at a price you’re comfortable with and to sell at your target price. Higher levels of activity also mean more price movements and therefore more opportunities within each day for investors to potentially make profitable trades.
However, this also means that you will need to keep up-to-date with the developments within that particular market, or at least the stocks you own in that market. You will need to weigh how much time and effort you are willing to invest in keeping up with the news flowing out of those markets.
Okay! You’ve convinced me, but which overseas markets should I consider?
For a start, some of the overseas markets that investors here commonly branch out to include:
US Stock Market – When it comes to an overseas market that has brand familiarity, longevity and a high trading volume, look no further than the US stock market. It continues to be the home of big names like Apple, Facebook and Tesla, all of which are enjoying steady growth.
One challenge of trading on the US stock market is the time zone difference, which requires investors to be night owls if they want to actively monitor the market. Anyone who would like to actively trade on the US market should make sure that their brokerage can adequately support their needs during the US trading hours.
Having a brokerage that provides alerts and notifications is also a good feature that can help to overcome the challenges of dealing with a market in a different time zone. This can help to ensure that you make the right decisions for your money at the right time.
Hong Kong Stock Market – Besides being one of the leading economies in Asia, Hong Kong also has one of the world’s largest stock markets in terms of the number of listed companies and their market capitalisation.
An influx of investments from mainland Chinese investors is bound to make some stocks more volatile, but stick to the bigger names and you should be in good hands.
With more than 2,000 companies listed in the Hong Kong market, it can be a tall task for investors to unearth hidden gems. Anyone interested in Hong Kong stocks should make sure their brokerage provides adequate research coverage on the market and be well informed before making a decision on where to start.
China Stock Market – Clearly still new to retail investing as a country, China has experienced significant stock market volatility over the past few years. However, China’s economy continues to grow at a steady pace and its long-term growth story remains intact.
Investors interested in the fast-moving China stock market might want to place their trades with a brokerage that provides online connectivity to the market. Online connectivity allows investors to perform trades and place their orders at their convenience, instead of having to rely on calling a broker. In most cases, investors also pay lower commission rates for online trades, as compared to broker-assisted trades.
*All stock performance figures are correct as of 29 Aug 2017
What are your thoughts on investing in overseas markets? Do you think it’s better than investing in the Singapore market? Share your thoughts with us here!
This article is brought to you in collaboration with OCBC Securities.
Are you interested in investing in overseas markets? OCBC Securities provides a number of services and tools that give their customers an edge in trading. Besides organising regular seminars for its strategists to share market insights with customers, OCBC Securities also recently launched its StockReports+ research database, which aggregates coverage from different analysts for stocks listed in Singapore, the US, Hong Kong and Malaysia.
OCBC Securities offers online access to 15 global exchanges, while its team of trading representatives, including a trading desk that is manned overnight, stands ready to guide customers with their individual needs.
From now till 30 September, OCBC Securities customers get to enjoy commission rebates on their buy orders on the US and Hong Kong markets once they have accumulated USD88 or SGD88 of brokerage fees respectively on those markets. Find out more about the on-going promotions at https://portal.iocbc.com/promotions/index.html.