3 Factors to Note When Investing in Overseas Stocks

There are over 700 stocks listed in the Singapore market that cover a wide range of industries. An investor, therefore, may feel that there is little need to gain exposure to companies listed in other markets.

However, in reality, despite boasting a wide range of companies, there are still limitations to the kind of companies listed in Singapore.

For instance, there are not many companies listed in Singapore that operate in the technology or pharmaceutical industries. Most of the Singapore companies also operate either locally or regionally, and may not have exposure further away.

Furthermore, companies listed in Singapore may not have the size or reach that some of the international companies boast. Because of these reasons, an investor may wish to invest in stocks that are listed outside of Singapore.

Having said that, there are additional risks and cost factors that come into play when investing in overseas stocks. It is therefore important that investors are familiar with these additional factors.

In this article, I will highlight three main factors to consider before investing in an international stock.

Currency fluctuations

Typically when you invest in a company listed outside of Singapore, you will need to buy the shares in the country’s currency. By doing so, you are exposing yourself to changes in the currency value.

If a country’s currency depreciates against the Singapore dollar, the investor’s returns will be hampered when cashing out the investment in the local currency.

Additional charges

When investing in stocks overseas, brokers in Singapore typically charge an additional monthly custody fee. This is usually around $2 a month per counter. This may not add up to much for most investors but for those who are just starting out with a small portfolio, this additional fee can significantly affect your investment returns.

Investors who over-diversify and hold a wide range of counters may also end up paying a significant amount each month.

Specific country risks

Each country may have their own specific risks. Some countries with an unstable government may face political risks, which can negatively affect your investment returns. At the same time, other countries may be affected by natural disasters.

It is important that investors are aware of the specific risks involved in each of their investments.

The Foolish bottom line

Investing in overseas stocks can provide investors with more investment options. However, it can also be more costly and may pose additional risks to investors. As such, investors should familiarise themselves with these factors in play.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Jeremy Chia doesn't own shares in any companies mentioned.