Apple Inc (Nasdaq:AAPL) is up 119% for the year to date, while Nokia’s shareprice (LSE: NOK.L) keeps charging up, rising nearly 90% since January. Great stocks to have bought into if you’d had the foresight, but how would you go about it?
Buying overseas shares is no more difficult than buying Australian, says Rod Bristow, executive manager – broking at CommSec, where 10,000 clients currently have overseas trading accounts, and 50 new accounts are being opened weekly. “In terms of set-up and administration it’s fairly straightforward,” he says.
There are a couple of forms to fill in – one with your personal details, tax file number etc, and a certificate of foreign status for tax purposes. You then open an account with the broker or nominate an existing account from which funds for trades can be deducted. After that it’s a matter of lodging your purchase order – either online or by phone. The broker takes care of the actual transaction and any currency issues.
CommSec provides access to around 30 exchanges around the world via its partner Pershing, a subsidiary of the Bank of New York. Other providers such as Sonray Capital Markets and GET Financial provide access to around 20 exchanges but differentiate themselves from the bigger traditional brokers by allowing traders straight-through access to those exchanges. CommSec allows online trading only for US stocks. Brokerage varies from US$30 per trade on US markets at Sonray and GET Financial, to US$130 at CommSec for Asian exchanges like Indonesia and the Philippines.
Being able to access exchanges directly allows you to buy and sell in real time, points out Nigel O’Shea, managing director of GET Financial. “It means you get speed of transaction, plus complete transparency and instantaneous reporting,” he says. That may not be as important for longer term investors, but when you’re used to being able to trade online it makes sense to be able to be able to tap directly into the trading facility rather than through the intermediary of a broker.
So given how easy it is, why don’t more Australians trade international shares? Even at CommSec, the 10,000 clients with international trading accounts represent less than 1% of the broker’s 1.5 million clients. At GET Financial and Sonray the proportion of clients with international trading accounts is a lot higher – around 30%, but for brokers who specialise in this area, that’s still a lot of clients reluctant to wander off shore.
Maybe it’s the relatively poor returns of international shares over the past few years, diluted further by the rude health of the Australian dollar. But valuations here mean it makes sense to diversify to other less over-blown markets. And some of the biggest run-ups in recent times have been on blue-chip companies in overseas markets that are coming out of a time of lower returns.
When Australian investors do look to the global arena they tend to stick to relying on fund managers – investing in an international share fund that takes in the whole of the investible world (according to MSCI World Index weightings) or a regional or country fund. Which is great for diversification across those regions, but means you’re still often paying high management fees for a performance that more or less tracks their respective indices. If you want diversification you could do just as well, and pay much lower fees, buying into an international index fund like Vanguard’s or an ETF (exchange traded fund) like the iShares issued by Barclays.
To buy direct shares though, you do need an element of familiarity with both the overseas markets and individual companies there. And while there’s endless amounts of information via Reuters and Bloomberg and other global stock research newsletters, it’s not quite the same as being on the ground in those countries. Here in Australia it’s impossible not to know what’s happening with say Wesfarmers or Macquarie Bank. But if you’re trading stocks in the UK or in Hong Kong you need to spend a lot of time reading and interpreting the financial and local press to get a sense of what’s happening in those markets and to individual companies.
Many international investors stick to buying well-known companies like Dell, Microsoft and Walmart. “Occasionally you’ll get someone doing their research and buying mining stocks in Canada or property stocks in Hong Kong,” says Doug Picken, Business Development, Sonray Capital Markets. Bristow says though that he has observed some of the more sophisticated clients at CommSec concentrating their interest on particular countries and sectors rather than trying to become experts across the investible world. “They’re disciplined in their investing strategy, watching economic trends closely and looking at how their stocks are reacting to their trends.”
O’Shea says too that an increasing number of GET Financial investors are taking advantage of the multiple listings of some of the bigger companies across a number of exchanges – BHP for instance, or Nokia – and adding to their holdings or hedging with CFDs after observing price movements on other exchanges. Others are combining their international shareholdings with the use of CFDs for hedging purposes. “They’re becoming a lot more sophisticated in their research and taking advantage of the opportunities that are out there on the global stage.”