Singapore’s stock market represents less than 1% of the global stock market. This percentage is even smaller if the three major banks are excluded. So, why limit ourselves just to Singapore stocks?
We are blessed to be living in the era of the Internet. With a click of a button, we can invest in companies in Australia, America, Europe or other parts of Asia, giving us the opportunity to diversify our portfolio overseas and invest in many of the great companies outside of Singapore.
In this article, I will give a step-by-step guide on how investors in Singapore can begin investing in stocks outside of our country, and what are some of the major considerations when investing internationally.
Step 1: Find a broker
Numerous brokers facilitate the trading of international stocks. You can choose between banks that offer brokerage services or dedicated online brokerage platforms. Here are a few things to take note of when selecting your broker.
First, make sure you know what the brokerage charges are. There are a number of low-cost online brokerages around, which can help you save plenty of money over the long run.
Second, some brokerages have hidden fees such as custody fees. If the stocks are held in a nominee account, some brokerages will charge a monthly custody fee. Try to look for brokers that do not charge this custody fee as it can snowball as your portfolio grows.
You should also make sure that the broker you select offers access to the markets and products that you wish to invest in.
Step 2: Set up an account and fill out all the relevant forms
There may be additional forms that you need to fill out if you wish to open an international trading account. For instance, you will need to fill in a tax form known as a “W-8BEN – Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding”. Your broker will most likely be happy to guide you through each requirement.
Ask your broker for information or forms required for each specific markets.
Step 3: Transfer funds and begin trading
Finally, some brokers require you to transfer funds to your account to start trading, while others allow you to simply link your bank account to the brokerage account. It is important to find out the exact process of your broker before you start trading.
Considerations when investing in international stocks
Every country has its own set of rules that investors need to abide by. For instance, dividends from Singapore-listed companies are generally not taxed for individual investors. However, this may not be the case when investing in overseas stocks.
Some countries may also have capital gains tax. It is useful to find out the different rules and regulations of the country you are investing in.
There may also be different brokerage fees when investing in foreign stocks. Check with your broker to find out the exact brokerage fee for the market you are investing in.
Finally, investing in international stocks exposes you to currency risk. For instance, when buying US stocks, you will be exposed to the exchange rate of the US dollar against the Singapore dollar. If the US dollar weakens against the Singapore dollar, investor return will be diluted and vice versa. If both the currency and share price move against you, the overall net loss on your investment will be multiplied.
The Foolish bottom line
The Singapore market is only a minnow on the global stage. Apple Inc, for instance, has a market cap that is over a trillion US dollars. On the other hand, the largest local company listed here, DBS Group Holdings Ltd (SGX: D05), has a market cap of S$66 billion, which is just a fraction of the size of Apple. Investing in international stocks allows you to diversify your portfolio and to gain access to some of the biggest and fastest-growing companies in the world.
That said, nothing is risk-free. Investors should be mindful of the additional currency risk and individual country rules such as the different taxes.
Hopefully, this article has given you the tools and confidence to take your first steps to invest in international markets.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has a recommendation on DBS Group Holdings Ltd and Apple Inc. Motley Fool Singapore contributor Jeremy Chia owns shares in DBS Group Holdings Ltd.