Many investors in Singapore do not venture outside the Singapore Exchange (SGX) when it comes to investing. Often, they perceive added risks or cite reasons such as requiring too much time and effort to learn how to do so.
At DollarsAndSense, we have written about how investing in Singapore can give you exposure to a wide range of industries all over the world. However, this does not mean investors should treat it as the end of their investing journey.
Why You Should Consider Investing In Foreign Stock Exchanges
Foreign stock exchanges such as the Hong Kong Stock Exchange, at US$3.3 trillion, and the New York Stock Exchange, at US$19.2 trillion, are several times larger than the SGX, which is at $1.2 trillion. There are also numerous other larger exchanges such as those in China and Europe, and more familiar, and hopefully easier to start understanding, exchanges such as those in Malaysia and Thailand.
Some of these overseas exchanges are a lot more liquid and quite often carry companies that are the biggest and strongest in the particular country. Alphabet, parent of Google, Facebook and Apple are listed in the US; Sinopec and China National Petroleum are listed in China; Royal Dutch Shell and Unilever are listed in England; Samsung in South Korea; Sony in Japan and Sime Darby and Telekom Malaysia are listed in Malaysia.
Another reason is that there are close to 50,000 companies listed in the world. This compares to just over 700 companies in Singapore. This allows investors much more opportunities to invest in quality companies no matter where they are listed.
By making the world your oyster, you are able to diversify your investments globally and invest in many of the high quality companies that are listed in foreign markets.
Some Other Things To Consider
Having gone through some of the pros above, there do exist some negatives. This includes putting more time and effort into monitoring and tracking our investments. In our already busy lives, this can be tough. It may also provide some logistical issues when it comes to setting up accounts, buying, selling and receiving dividends as certain countries have differing sets of regulations.
Even if you are confident or willing to do the extra work to monitor, track and learn about the overseas investments you think make sense, you have to take into account that the trading hours differ for overseas markets. This means that if you want to make trades or set a specific sell price, you need to closely monitor the markets even during odd hours or round the clock, which may be extremely difficult.
Foreign Exchange may also move against you, or for you. This is another aspect you need to monitor for our investments. You may be gaining in terms of returns, but when converted back to the Singapore dollar, it may give you a negative overall return. On the flipside, it may also work for you.
How To Get Started Doing So
Investing overseas is actually as difficult or as simple as you make it out to be. If you think of all the added work and monitoring that will go into our foreign investments, then this barrier may seem too tough to break through. However, if you are open to starting this journey, there exists very simple ways to do so.
There are two main ways to do so. The first is to leave some of the work to the professionals and put your money in unit trusts that are invested in overseas indexes or individual companies. The other way is for investors to actually learn about the markets and companies that they want to get invested in, and do it themselves.
Investing Via Unit Trusts
Some investors may opt to go down this route via unit trusts. This allows them benefit from the advantages and allows them the convenience of not having to do so much learning on their own. Of course, doing it this way also means they likely have to forgo some returns in the form of management fees charged by unit trusts. Typical management fees are in the region of 2% to 3%.
Another way of thinking about this is to allow the professionals to do the initial groundwork and teach you the ropes while you get started monitoring overseas stock markets. This allows you the flexibility to take over if you feel confident or continue the same method if you see that this actually is the better solution for you.
There are many unit trusts that people can buy into. All they need to do is go to any bank in Singapore, and they will more often than not be able to provide this service. You can also do this with many other investment platform providers such as iFast’s FSMOne portal, which allows you to put together all our investments in one platform to ease tracking and monitoring our investments across numerous asset class.
Investing On Your Own
With a local brokerage
The other way is to invest on your own. After considering what you want to get invested in, you just have to check with your current brokerage firm whether they offer investments in other countries – most brokerages in Singapore offer investments in overseas exchanges. The most common countries include Malaysia, Hong Kong and the US.
If you decide to do this, there are several fees that you need to know about. Using a local brokerage, you will often have to foot similar fees to buying local stocks, including brokerage commission charges, foreign goods and service tax (GST) and clearing fees. In addition, you will have to foot a trading fee.
Once you have bought the stocks, you will have to bear additional fees for holding your foreign stocks. This is typically about $2 per counter per month, but is waived if you make six trades per quarter. Also, if you receive dividends, you have to note that some countries apply a withholding tax on a portion of your dividends, and your brokerage will also apply small a handling fee.
The withholding tax on dividends by foreign countries may be quite hefty. For stocks listed in the US, it may come up to 30% and for stocks listed in Malaysia, it comes up to 10%. However, for countries like Hong Kong, there are no withholding tax. So, it differs quite drastically from country to country.
When you sell your stocks, you typically only pay the same charges as when you bought the stocks. However, there are still discrepancies, such as Indonesia setting a 0.1% withholding fee on sell trades. So, the rule of thumb is to always check with your brokerage.
A last point to note is that foreign stocks have to be bought in foreign currencies. This means that you also may incur exchange rate charges to convert money whenever you buy and sell stocks. Local brokerages usually offer multi-currency accounts so you do not have to keep exchanging currencies every time you buy and sell foreign stocks.
With a foreign brokerage
There is also another way to buy foreign stocks. You can open a foreign brokerage account to do your buying and selling. However, you need to realise that this may complicate situations as you may end up with several accounts across several countries that you need to keep up with.
The best solution is to use one foreign brokerage that you can use for all your overseas stock purchases. It then becomes vitally important to choose a brokerage that is trustworthy. Such platforms include Interactive Brokers, which provides users access to major stock markets around the world.
Typically, they offer lower fees than local brokerages. However, for Singapore residents, you cannot use Interactive Brokers to trade local stocks – this seems like a way to protect local brokerages. At the end of the day, you need to weigh up the costs and time spent monitoring more than one platform. If you do invest regularly in foreign stocks, this could be a logical choice with the typically lower fees.
Investing Is A Journey
The hurdles of making overseas investments should not stop you if that is what you want to do. There are some downsides, namely the added time and energy spend to learn something new, monitoring the progress, sometimes at odd hours, and having to manage foreign exchange risks.
Some of these cons that are highlighted are actually risks. And as with all investments, there are risks involved.
The upside is that you widen your knowledge and strengthen your nest egg through broader diversification, leveraging on global growth and access to high quality companies that may be listed in their home countries.