The ultimate goal of embarking on any investment activity is to maximize the highest possible return by taking the least amount of risk. It is an undeniable fact that investing in the stock market anywhere in the world is not for the faint hearted, however only a few will disagree about the potential of generating huge returns from stocks.
This isn’t the 80’s or 90’s. The wind of globalization has blown across country borders and opportunities are no more bound by geographies. The advent of the internet has made it easier for investors to study new markets at a greater distance, access new investment opportunities and with just a smartphone trade stocks online at their fingertips.
There are two major benefits of investing in foreign shores;
- Diversification and possibility of profit from trends and developments outside your country.
- Growth in capital
The basics of investing in any stock market worldwide is the same, however I would outline what I think is to a large extent is needed to invest in a foreign stock market.
What is your goal?
This is a personal question, but this is where it starts. This question will serve as a guide in other things you do along the way e.g. deciding on what type of stocks to buy or what brokerage firm to choose etc.
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Is your goal to retire at 40 and travel the world? Whatever the answer is, remember that any investment you choose should serve that investment goal.
Decide on what country to invest in
There are 3 classes of markets – Developed, Emerging market and Frontier markets. There are opportunities in all three classes.
Africa – The stock exchanges in South Africa, Kenya, Zambia, Egypt, Botswana, Rwanda and more, all offer opportunities for foreign retail investors.
Asia – Most countries in Asia will receive foreign investment from any source, and setting up a brokerage account in countries like Singapore, UAE and Hong Kong is not too difficult as there are no restrictions on foreign ownership of stocks listed on their stock exchanges.
India does not allow foreign individuals to invest directly into its stock market. Only high net-worth individuals (with a net-worth of at least $50m) can be registered as sub-accounts of foreign institutional investors.
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Saudi Arabia is closed to foreign retail investors, as only citizens of members of the Gulf Cooperation Council can invest in the stock exchange.
China has 2 types of shares, with different rules – Class A and B shares. Foreign retail investors can only trade on Class B shares.
Western Europe and North America – There are no major barriers for retail investors to invest in the majority of stock markets in Europe and North America. You also have the advantage of multimarket brokerage accounts which covers the majority of both regions. These markets have thousands of stocks and are already developed.
In selecting a country, you will need to focus on economic and political stability, the key drivers of that particular economy, transaction costs, counterparty risks, and regulatory risk.
Select a Broker
Once you have decided which country you want to invest in, the next step is to choose a suitable broker for you.
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The internet is a goldmine, a simple step will be to visit the website of the stock exchange of the country you plan to invest in and search for the list of active stockbrokers in that country.
Once you select a list of stockbrokers that interest you, visit their websites for more information to see if services offered will meet your needs. You will need to go as far as calling or sending an email to get a proper understanding.
Stockbrokers may have their own charges, so it is up to you to search for a few and find out before making a decision to place your money.
Documents required for opening a Brokerage Account
The documents that may be required for opening an account before you start trading in stocks may differ from country, however, a list of documents you will definitely need to provide is listed below;
- Account Opening Form
You will need to complete an account opening form, otherwise known as “Know Your Client (KYC). Filling this form will require you to provide certain details not limited to your full name, passport number, ID number, house address, banking details, investment strategy etc.
- Certified Copy of your passport
A certified copy of your passport and passport photograph must be mailed to your stockbroker.
- A recent Bank statement
This will be used to verify that you are indeed the owner of the account that will be used to send and receive funds. The bank statement must show your account number & IBAN or SWIFT code. Don’t worry about not having much in the account.Some brokers will require that the above documents must be stamped by your bank.
After all is done and your account is opened, you will need to transfer funds to your broker’s bank account. We listed several ways to transfer money abroad from Nigeria
You can submit a trade order by signing a trade mandate form or sending an email.
Finding Good Companies
Discovering quality companies that will provide high returns is tough, but a good starting point for a smart investor will be to visit the website of the Stock Exchange. The websites usually have a list of all the companies listed, including weekly and monthly reports of the performances of these companies and the market in general.
You can find the list of companies and pay a visit to their respective websites. The websites of these companies will have more information about results over the years which is usually included in the Investors Relations section.
You don’t have to be a genius at analyzing financial statements or interpreting financial jargons. Reading research reports and being up-to-date on financial news will keep you abreast on happenings.For an individual just starting out it will be better to seek the financial counsel of your broker who understands the market better than you do.
Aside from investing in individual stocks, investors have other options of asset classes to invest in, some of which include;
Exchange Traded Funds (ETFs)
An ETF combines the features of an index fund and a share. ETFs allow investors to take exposures in the underlying assets of an ETF in a cost-effective manner without having direct exposures to the underlying assets.
Depository Receipts (DRs)
A depository receipt is a negotiable financial instrument issued by a bank to represent a foreign company’s publicly traded securities. The depository receipt may trades on a local stock exchange, such as the NEW York Stock Exchange in the U.S., but represents an interest in a company that is headquartered outside the United States.
Two types of DRs are the American Depository Receipt (ADR) and Global Depository Receipt (GDR).
My name is Kay C, I’m a huge nairametrics follower, I listen to Ugodre a lot both on business express on smooth98.1fm week days and on every day money matters on 91.3lagos talks on Wednesdays, I am so grateful for this information as I was making a research on how to invest in some foreign stock markets, then I found this vey useful 411, thank you ? so much Nairametrics, I an an investment freak, and Im really keen on both local and foreign investments.
This is one of the best Nigerian articles I have seen in years. Many thanks for this as I have been looking for this info for 10 years now. However I have the following questions-:
(1) How do you ensure that when you want to get your money back, you will actually get it back ie stockbroking firm registered with is actually able to send proceeds back to one’s Nigeria account?
(2) Other than Foreign Exchange rate fluctuation, bank transfer costs(Nigeria & the other country), stockbroking costs, are there other costs that one needs to be aware of? Will one have to pay taxes in the foreign country? These factors determine if it makes any sense to but stocks internationally