How to invest in international shares on global stock markets
It’s never been easier to invest in some of the world’s largest and most profitable businesses.
With value stocks in the Australian share market becoming decidedly harder to find, there’s never been a more compelling argument for dipping your toes into global equity markets offering greater potential for growth, plus portfolio exposure to a broader range of class-leading businesses.
What you need to get started investing in global stocks
It’s never been easier to diversify your portfolio through overseas exchanges. Organisations that offer international broking accounts include: CommSec, St George, E*trade Australia, Westpac, Halifax Investment Services, Interactive Brokers, Saxo Capital Markets and HC Securities.
Opening an account with a global stockbroker is no more difficult than opening a bank account, and buying international stocks is no more difficult than buying Australian ones.
Once you’ve provided personal details, including tax file number, and are issued with a certificate of foreign status for tax purposes, you can proceed to either:
A. open an account with a broker or
B. nominate an existing account from which funds for trades can be deducted.
Then you’re pretty much good to go. Purchase orders can be made either online or over the phone. If you’re buying shares in A$ you should ask when and how currency conversion takes place, and if there’s a fee involved. Similarly, if a cash account needs to be set up, check whether interest is paid and what other features are available, including the reporting of foreign currency interest for Australian tax purposes.
Your nominated broker will provide you with access to a certain number of offshore stocks based on their partnering arrangements with foreign exchanges. For example, while CommSec and Westpac Online Investing allows online trading for US stocks only, Sonray Capital Markets and GET Financial provide access to around 20 exchanges.
To differentiate their services from those of bigger counterparts, smaller brokers can offer you (the trader) direct access to those exchanges. This puts you squarely in the hot seat, but remember if you choose to side-step an intermediary, you’re effectively trading in real-time and are solely responsible for the stocks you buy and sell.
Tax considerations for international investing
Whether you’re buying direct international shares individually or via a self managed super fund (SMSF), remember that they’re still subject to tax in Australia (assuming you’re an Australian resident). So if the shares pay a dividend and had imputation credits (foreign tax credits) attached to those dividends, then these credits could be used by your (SMSF) fund to offset Australian tax up to the Australian tax liability amount. While you will also be subject to capital gains tax (CGT) – this will only occur on the sale of your foreign shares.
ETFs as an alternative to direct shares
Direct international shares aside, you can also get access to global stocks via ETFs (exchange traded funds) like iShares, issued by Barclays, or an international index fund, like those offered by Vanguard or BlackRock. These have become attractive low-cost alternatives to fund managers that charge higher management fees for the privilege of investing in an international share fund on your behalf.
Then there are (international) ASX-listed investment companies (iLICs) like Magellan Flagship Fund and Templeton Global Growth Fund, which are vehicles for getting exposure to inexpensive international assets. But be warned, to achieve decent returns from iLICs you need to buy them at a significant discount to their net tangible assets (NTA), to offset the weighty management fees that iLICs tend to charge.
Equally important, if you favour international share funds or iLICs over direct shares, remember that past performance is no indicator of what these investments may do in the future.
If you plan to buy direct international shares, Share Analysis Global filters into key global markets like the US, Canada, Hong Kong, Singapore, the UK, Europe and Switzerland. Share Analysis Global can be used to take the guesswork out of identifying top rating global stocks.
Benefits of investing in international shares
Diversifying your portfolio to include overseas stocks brings benefits in reduced risk and greater growth potential.
To successfully invest in global stocks you don’t need to watch the news, or know everything written about a stock in the media.
What you do need to know is their intrinsic value compared to the share price, and the big picture of what’s going on in the world.
The point is, you don’t need to be a specialist in each global stock you buy in order to make money. You just need to know the important stuff. Here are the three most important things you need to know about why you should be investing in global stocks.
1. Global stocks broaden your opportunity pool and allow you to be more selective
Believe it or not, the big-four banks plus BHP, RIO, the ‘Big 4’ banks, Telstra, Wesfarmers, CSL and Woolworths account for more than 50 per cent of the Australian stock market.
Diversifying your portfolio beyond Australia can offer a much broader range of class-leading businesses, and being on the right side of currency movements can further reduce risk. What’s notably absent from the local Australian exchange is leading global technology stocks, leading global healthcare stocks or Asian-focused high growth industrial stocks.
Expanding your portfolio to global markets means more stocks, and more stocks means more choice. And if you are going to own only 20 stocks in your portfolio, you don’t want to compromise on choice.
Investing in global stocks also means that you can invest in the best performing economies, and avoid the laggards. Choice is a powerful thing.
2. Currency tailwinds
The A$ certainly makes it more difficult to invest in the US now that it has fallen from great heights above parity. However, if you believe there is further downside to the A$ there is a reasonable case to suggest that overseas investments, if carefully considered, might produce strong returns.
The downside propensity in the A$ and the strength of the US economy would underpin this opportunity, while in Europe and Japan where there’s less economic strength there’s also less propensity for future gains.
By investing in global stocks denominated in foreign currencies, you can protect against the impact of a descending AUD on your net worth.
3. Global stocks reduce your dependence on the Australian economy
Whether the Australian economy is going through a resources boom our upsurge in housing activity, placing all your bets on the performance of the Australian economy is perhaps unwise.
By learning how to invest in global stocks, you can be more discerning in your investment choices, protect your net worth from a fall in the AUD and reduce your reliance on the performance of the Australian economy.
Going global is easy
It’s never been easier to diversify your portfolio through overseas exchanges, and organisations that offer international broking accounts include: CommSec, St George, E*trade Australia, Westpac, Halifax Investment Services, Interactive Brokers and Saxo Capital Markets.
Direct shares aside, you can also get access to global stocks via ETFs, a LIC (listed investment company) or even a managed fund.