CommSec
17 May 2018
International investing is on the rise for Australian investors, thanks to booming overseas markets and the allure of big name stocks like Facebook and Amazon. If you’re ready to dip your toes into the global market, there are some unique benefits on offer. International trading can give you access to investment opportunities that aren’t normally available in Australia, and it can help you achieve more diversification in your portfolio.
What is international investing?
International investing means adding overseas investments to your portfolio. These investments could be things like foreign stocks, bonds, mutual funds, or currencies.
Many investors are attracted to international shares because of the scale of the global market. The Australian sharemarket represents less than 2% of the world’s total sharemarket value[i], so it’s a relatively small slice of the pie. By expanding your portfolio to include international equities, you can tap into a much larger market.
In this article we’ll focus on international shares, but there are other ways to invest in overseas markets:
• Exchange Traded Funds (ETFs) that provide you with exposure to international shares and assets
• Listed Investment Companies or Managed Funds that invest mostly in shares listed on overseas stock exchanges
Two reasons to buy international shares
1. International investing opens up access to more investment options
International investing can provide access to industries and countries that are performing more strongly than Australia and its major industries (in the short and long term). For example, international markets can give you access to globally known brands and mega-cap companies like McDonald’s, Apple, Microsoft, and Facebook.
To put the size of a mega-cap company in context, the largest cap company on the Australian market is CBA at AUD$129.5 billion. Meanwhile in the US, Microsoft is the largest market cap company at AUD$1,198.6 billion (values quoted as of 26 February 2019). If an investor wants to invest directly in these mega-cap companies, they’ll need to look beyond the Australian sharemarket.
2. International investing can help you diversify your portfolio
Buying international shares can give you the opportunity to diversify your portfolio across different countries and sectors. If you diversify adequately, a slowdown in one market should have a limited impact on your portfolio, as you can benefit from growth in another market that’s rising.
Geographic diversity
If you only invest in Australian companies, your returns will be dependent on the performance of the overall Australian economy. In the event of a wide downturn, it’s possible that all your investments might be negatively affected. Investing in markets outside Australia could help you reduce some of this risk, as a downturn in Australia might not necessarily affect overseas markets.
Sector diversity
Not only is the Australian sharemarket relatively small, but it tends to be dominated by financial and mining companies. (These two sectors account for about 60% of the ASX All Ordinaries Index[ii].)
International share markets can give you access to sectors that are under-represented on the Australian market – or not represented at all. For example, the US stock exchanges offer excellent exposure to the pharmaceutical, aerospace and artificial intelligence sectors, as well as technology stocks. The Australian sharemarket might offer some exposure to these sectors, but they are much better represented in the US markets.
So if you want to spread your investments across multiple countries, markets, and industry sectors, you could consider buying international shares.
The risks of investing in international shares
Every investment comes with risks, and international investing is no different.
Some of these risks include:
• Currency risk - When you own international shares, the value of your income and capital gains or losses will be affected by fluctuations in the Australian dollar (AUD).
• Time differences - The market where you’re trading international shares might operate in a different time zone, meaning trades and information could be delayed.
• Tax implications - Income from foreign investments versus domestic investments may be treated differently for tax purposes. So it’s a good idea to seek professional tax advice before you buy or sell international shares.
• Political and regulatory risks - Your investment could be exposed to country-specific risks, so you’ll need to understand the markets, economics, laws and regulations of the country where you’re investing.
International trading with CommSec
CommSec gives you access to over 25 global share markets, including the New York Stock Exchange, the London Stock Exchange, and the Tokyo Stock Exchange.
If you’re ready to get started, here’s what you need to do:
• Open a CommSec International Trading Account
• Transfer funds into the relevant currency
• For US markets, you can place a trade online (for non-US markets, contact our International Trading Desk)
• View all your trades and holdings online through your International Trading Account
• Personal advice on international investing is available upon request
Important information
Trade execution, clearing, settlement and custody of international securities are provided by Pershing LLC, a subsidiary of the Bank of New York Mellon. When you open an International Trading Account with CommSec, you access international markets through Pershing LLC via the CommSec website or by calling the CommSec International Trading Desk.
[i] https://www.moneysmart.gov.au/investing/shares/international-shares
[ii] https://www.moneysmart.gov.au/investing/shares/international-shares
