4 Ways To Invest In Foreign Stocks
Today, geography does not hinder investment opportunities. If foreign economies are booming and you would like to invest, you can as well venture into those markets. All you need is to know how to make your way around the markets. If you live elsewhere and investing in the Hong Kong market interests you, it is not impossible. If you live in Hong Kong, it is even more comfortable.
Hong Kong is well known for its free trade agreements, low taxes and is a world leader on the Economic Freedom Index. Hong Kong has the fifth largest stock exchange in the world and as of 2018, the most significant initial offering worldwide.
You can invest in a trading platform in six primary ways:
American Depository Receipts (ADRs)
ADRs are a very convenient way to purchase foreign stocks. Most foreign companies make use of ADRs to establish a U.S. presence and to raise capital. ADRs are traded on U.S. exchanges, and you can buy them like ordinary shares via brokerage accounts. Some popular ADRs in Hong Kong include Sun Hung Kai Properties Ltd (US OTC SUHJY), Hong Kong Television Network Limited (US OTC HKTV), AIA Group Ltd (US OTC AAGIY)
Invest Directly Through A Broker Based In Hong Kong
Investors from all over the world can invest on the internet via local brokers who have their base on a trading platform in Hong Kong. There are restrictions on some countries, and there are things Hong Kong brokers should do before offering their services. For example, the U.S., a financial institution not registered under the U.S. Securities and Exchange Commission (SEC) cannot take on U.S. clients.
The Foreign Account Tax Compliance Act (FATCA) put more restrictions, and thus, some brokers from Hong Kong avoid U.S. clients, but not other countries.
Brokerage firms offering universal access often provide several international exchanges. Ensure you research on brokers before doing business with them. Look at the account type, which should either be discretionary or non-discretionary, countries they cover and their commission structure.
Global Depository Receipt (GDR)
A depository bank gives out foreign companies’ shares in the international market, mostly in Europe. The bank makes the stocks available to the investors that are within and without the U.S.
Most GDRs are in the U.S dollar, while some use the British pound or Euro, and are traded and settled just like domestic stocks are. The Luxembourg and London stock exchanges are the most favoured locations for GDR listing. GDRs have also been listed on other exchanges such as Dubai, Frankfurt and Singapore.
Global Mutual Funds
Investors interested in the exploration of international market trading platform without any stress can choose to invest in global mutual funds. These funds mimic any mutual funds concerning benefits and procedures. However, they focus more on foreign stock, not domestic.
These funds are built for any investor, whether conservative or aggressive. They are comprised of international funds, global funds, international index and country-specific funds. These funds, just like any other foreign investment, have higher costs in comparison to domestic funds.
Hong Kong is a very beneficial investment opportunity, with it being a free country and a vital global financial center. Its proximity to the growth in Asian economies gives Hong Kong a definite advantage. Chinese investments have been flooding the Hong Kong Stock Exchange. If you are a long-term investor, you must keep in mind that these price appreciations on the trading platform, courtesy of these investments are not pegged on the basics, and are extremely volatile.
As an investor, you must be careful to base your investment decisions on economic factors and not on the price fluctuations. Any investor planning to invest in the Hong Kong Stock Exchange should first thoroughly understand the costs, regulatory compliance and tax considerations.
Once you understand these factors, you will be well on your way to owning a piece of one of the biggest stock exchange markets in the world. Start small and work your way up. The results will be evident with some patience.