It has never been easier to buy foreign stocks in Singapore and diversify your portfolio from your home computer. Adventurous investors are increasing returns while lowering volatility and risk with a few clicks of a mouse.
The advantages to investing in foreign stocks are many. US listings offer a wide choice of dividend-paying stocks with decent yields. If it is high growth you are after, you may want to invest in emerging markets. While the returns of any one market can vary greatly from year to year, diversified portfolios deliver higher returns long term.
Types of Foreign Stock Listings
You can already access foreign stocks to buy through your local stock exchanges.
Primary listings are companies that have had their first initial public offering on an exchange in your home market, for example, the Singapore Exchange (SGX). Asian companies may choose to list in Singapore or Hong Kong to access the larger, more liquid stock markets.
A large company may list a high growth spin-off or income generating trust on a foreign exchange to benefit from investor interest or tax breaks. Hong Kong’s richest man Li Ka-Shing decided to take Hutchison Port Holdings Trust public in an IPO on the Singapore exchange. Malaysia’s richest man Robert Kuok listed a new arm of his energy services company POSH Semco, PACC Offshore Services Holdings, on SGX.
Secondary listings have their primary listing on a foreign exchange, with a secondary listing on another market. China’s Alibaba first listed in Hong Kong before listing on the New York Stock Exchange as BABA to tap into the high US investor interest in e-commerce. Secondary listings are called depository receipts (DRs). Here’s a quick guide to DRs:
ADRs – American Depository Receipts (American Exchanges)
EDRs – European Depository Receipts (European/Other)
GDRs – Global Depository Receipts (Global/European Exchanges)
Brokers generally offer access to major Asian, European and North American exchanges. Accessing emerging market shares may be more difficult due to higher risks and fees, in which case pooled funds (e.g., mutual funds, exchange-traded funds) may be the best option.
Locally Listed Foreign Companies
A growing number of foreign stocks are listed locally. Singapore is an international investment hub for international investors who seek an overseas stock account to invest in Asia. Hong Kong is the other regional hub.
The Singapore Exchange (SGX) is positioning itself as the Asian gateway for foreign companies. Forty percent of its 766 listed companies are foreign. These stocks are expected to meet local corporate governance, accounting and securities standards.
While growing, the choice of local listings is still limited. If you want a broader selection of stocks to buy, there are several ways you can access foreign exchanges.
Local Broker Gateway to Buy Foreign Stocks
If you are a resident of Singapore with a local broker account, your broker likely offers access to the major Asian stock exchanges. If you want a stake in Twitter, your local broker may also provide access to the US and other foreign exchanges.
However, extra charges will apply and add to the price of the stock when you both buy stocks and sell it. The standard dealer’s fee will apply and may be higher for the purchase of foreign stocks. Assuming you are buying in Singapore dollars, a commission will be charged for the foreign currency conversion. If you are buying US stocks, for example, your broker will convert SGD to USD and charge you for the cost of the conversion.
Also, check overseas tax rules. You may be required to fill out a tax form. This may not be necessary if you are buying through a pension scheme. Tax rules differ by country and, in some cases, the sector you are investing in. If investing in Canadian mining securities, for example, you will be required to fill out a tax form. Your online broker should facilitate this process and provide the forms to fill out online.
Access to many foreign exchanges may be offered as a “broker-assisted” service, which will involve higher trading fees. To find out which markets Singapore brokers provide access to, see The Best Singapore International Stockbrokers. All brokers offer a different mix of Asian stock exchanges and access to US markets. An exception is Saxo Bank, which provides coverage of European markets.
International Trading Account
There was a time when opening a trading account in a foreign market was for wealthy investors who could pay high fees. You can now access online brokers in different markets from your computer. You may be asked to provide additional paperwork and pay via an international wire transfer to invest in foreign shares. The trading and currency fees mentioned above will apply.
A multi-market account will allow you to trade in different countries. Many of the larger brokers allow you to set up accounts in US dollars and possibly other currencies. With a US dollar account, you can buy US and foreign listed companies on US exchanges. This will eliminate the currency conversion fees. Of course, you can then also sell in US dollars. Another important advantage is the dividends will also be paid in dollars, so you will not lose on currency conversion fees.
Many brokers offer multi-market accounts that provide access to the major global stock exchanges. International Investor provides a list of the Best International Stockbrokers.
What if you want to invest in a company in Columbia – the global market with the highest 10-year returns? In this case, you will require broker-assisted services, which will be more expensive. Your brokerage firm may have an office or partner in the local market and can facilitate the trade through them. Alternatively, the broker could contact a market maker who acts as an intermediary between stock brokers. A disadvantage is the market maker will add an additional fee to your trade.
Choosing the Best Markets To Buy Foreign Stocks in Singapore
If your investment target is a specific company, says Alibaba, the least expensive route is likely your Asian broker. However, if you are targeting a specific industry sector, you may find yourself in some surprising foreign markets.
If your goal is to get in on the gold, copper and energy plays in Mongolia, you may find the best opportunities on the Toronto Stock Exchange (TSE) – a leading exchange for energy and mining companies. Companies will list in the markets where the investors in their sector aggregate.
Be adventurous. Through two multi-market accounts, you may be able to cover Asia, North America and European markets, and a few emerging markets may be included.
For more information on foreign equity markets, check out our Markets sections.
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