Why confine your investments to your home market?
“Dream big”. It’s a popular saying. Beyond the shores of your homeland lies riches and treasures yet to be discovered. This encapsulates the pioneering spirit of early voyagers. But venturing further afield is a lesson that I feel can be applied to investing too.
Fortune favours the brave
For me, beyond the tiny red dot of Singapore that I call home,
there are markets that boast companies which cannot be found in
Technology giants like Apple (NASDAQ: AAPL), Google (NASDAQ: GOOGL) and Facebook (NASDAQ: FB), for example, bring us products that we all use on a regular basis but unfortunately companies in their ilk are nowhere to be found on the Singapore Exchange (SGX).
I suppose you might think that since they are all tech products and the US has Silicon Valley, then of course it is unsurprising that these companies are listed there.
But even closer to home, beauty products I enjoy using – households names such as Innisfree, Laneige and Mamonde – are all Korean brands owned by Amore Pacific (KRX: 090430), a company listed on the Korean Stock Exchange (KRX).
Since Singapore is fairly diverse, there is a lot of exposure to international brands such as these. This also reflects the stock market at large. There are many more options other than the ones listed on the domestic exchange.
Diversification and protection
What’s more appealing, though, is that many of these companies are
operating in a different environment. This means that through
overseas stocks, we can provide ourselves with a degree of
insulation from domestic events.
During the SARS outbreak in Singapore back in 2003-2004, I remember I was in Primary School then. We all had to stay at home and have notes and homework delivered by mail to reduce the chances of spreading the bug.
Although it eventually subsided, the quarantines, fear and uncertainty at the time deeply affected the economy. The local stock benchmark index, the Straits Times Index (STI), slipped to its lowest level in recent times to just 1,235.25 points. This was even lower than the shock caused by the September 11th attacks in the US (see Figure 1).
Figure 1: Performance of the STI over time
However, on a global scale, this outbreak may not be more than a blip on the radar. If you look at for example the US, the S&P500 and NASDAQ indices were hardly affected. Holding overseas stocks can thus offer your average stock investor, like me, a chance to diversify risks.
Figure 2: NASDAQ and S&P 500 indices
Fortune favours the prepared
In theory, big and well-known companies can be good buys but in
reality, it can be really hard, from a psychological standpoint,
to hit the “buy” button on a long-distance investment.
That’s why for me, I am deciding to start off by doing “paper trades” in the US. With a paper trade, I can simulate buying into companies that I have researched on and get an idea of how the price moves. Since it is done only on paper, there won’t be any real monetary cost involved other than time spent in getting comfortable with the stock.
So in the meantime, what all investors can do is to research which sectors/companies you would like to focus on. Personally for me, the technology and e-commerce sectors seem to hold a lot of long-term promise. Amazon has hit a US$1 trillion valuation while Apple first broke the same record just a month back.
Are there any more opportunities waiting to be discovered? There’s definitely no need to be restricted by choice. When looking overseas, the world’s your oyster.
by Hui Yi Tee, Analyst @ FIGS
14 Sept 2018
(Please note that all views expressed in this article are solely my own and do not represent the opinions of FIGS or its related companies)
The information contained in the FIGS Blog is for your general information only and is not meant to constitute professional and/or financial advice. Please note that the use of the FIGS Blog is subject to the Disclaimers.