Investing in foreign stocks is not a bad idea, especially if you’re looking to diversify your portfolio. After all, if you concentrate all of your stock investments in US stock markets, you’re effectively placing all your eggs in one basket. A dip in the domestic stock market could cause problems for you – and spreading the risk across nations could be a wise move.
However, there are also some important other factors to consider when it comes to investing abroad. There could be different regulatory restrictions in place, for example, while there could also be some barriers when it comes to finding the information you need to carry out the fundamental analysis. If you’re considering investing in foreign stocks, this article can help you get the information you need.
First of all, it’s important to think about what the practical differences might look like for you if you’re planning to move away from trading in the US and going towards a foreign stock market. One such consideration is timing: if you need to close a position in a hurry due to a market downturn, you’re more likely to be successful if you’re online and working at the time. For foreign markets, this could be harder – and you may have to ensure that you have a strong broker that offers reliable tools such as stop losses on your side. Capital Markets Elite Group offers lots of risk management tools, and could be the sort of broker that can help.
This is especially important if you’re planning to follow a day trading approach. Day trading means opening and closing a position on the same day without leaving it open overnight or for days or weeks on end. The idea is that you’ll benefit not from potential long-term growth but from potential short-term profits. If you’re based on the east coast of the US but you’re intending to day trade Japanese stocks, for example, you may find that it requires a wholehearted change of your daily working rituals.
It’s also important to note that foreign stocks could entail problems when it comes to linguistic issues. Fundamental analysis is a crucial part of any investment journey, and often includes a strong element of reading. An investor may, for example, want to read company reports, or they may wish to read the financial newspapers of the country in question.
When you’re investing in American stocks, language is – for most Americans, at least – not an issue, as this sort of material is written in English. However, the same can’t be said when looking at Japanese, European or other stocks based in markets where English is not a common language. As a result, it’s important for all investors who are looking to invest in foreign stocks to make sure that they are able to access a translated version of local news and other fundamental analysis materials.
The European angle
Those who are planning to invest in European stocks, meanwhile, may have to think even more carefully before proceeding. Europe is one of the world’s leading financial centers, and the presence of cities such as Frankfurt has enhanced that sense in recent decades.
However, it’s not always plain-sailing if you’re investing in Europe from abroad. The EU places a number of regulatory restrictions on its stock exchanges, for a start: the European Commission is proactive when it comes to market intervention. Sometimes, this will benefit you: the EU forces firms to publish detailed information in their stock prospectuses, for example. You may find, though, that certain tactics – such as short selling – that are legal elsewhere are more restricted here.
It’s also worth noting that the Brexit saga has shaped and impacted the European stock investment sector in a number of ways. Until recently, the London Stock Exchange was considered part of Europe. Now, though, it’s no longer connected to the single market. Previously, the standardized rules offered by the single market meant that the foreign investment context in Britain was fairly clear. Now, however, that’s different. As Britain charts its own course, it may be the case that the country makes its own rules. It has already shown signs of doing this with the National Security and Investment Bill, which would give the government extra scrutiny over certain deals.
In sum, there’s definitely no reason to abandon the idea of investing in stocks or stock markets based abroad if you’re thinking about taking the plunge. However, it’s important to make sure that you take some precautions before moving ahead. Whether it’s ensuring that you’ve overcome any potential language and time difference barriers or being certain that you’ve understood the regulatory framework in your chosen investment destination, there’s plenty that you can do to maximize the chances of a successful investment foray across borders.