Reasons to consider international investing in 2023 – and where to start
With concerns about a recession looming in Australia, many investors are starting to look for alternatives to the ASX.
Sponsored by CMC Invest. Until 30 November 2023, when you sign up for CMC Invest, you'll receive $100 cashback when you transfer international stocks to CMC Invest, $0 HIN transfer fee and no holding limit. To find out more, visit CMC Invest.
Investors across Australia are looking for new opportunities.
With a rise in the cost of living over the past year and the looming risk of a recession, many investors are beginning to question whether the ASX is the best market for their investment.
International investment, then, seems like the logical next step. But where – and how – can investors get started?
In this primer, we'll take a look at some of the key reasons investors opt for international investments, show you how you can get started and also provide an overview of several countries where you can get started.
The benefits of international investment
Australian investors opt to invest overseas for a range of different reasons. We've outlined some of the most common below.
However, every investor is different, so don't expect all of them to resonate with you equally. If you're considering investing overseas yourself, your approach will be influenced by your prior experience, investment goals, current plan and risk tolerance.
Higher capital growth opportunities
Different markets tend to generate different results over time. The 5-year return on the Nasdaq (US market) is over 70%, while the S&P/ASX 200 (Australian markets) is just under 20%.
Capital growth is even more prominent when we look at the 5 year return on popular US stocks, like Tesla +1,050%, Nvidia +579%, and Apple +302%.
By investing internationally, you could potentially set yourself up for better long-term returns than by solely investing in the Australian market.
Portfolio diversification
For many investors, diversification is the primary reason for investing overseas.
The reasons for diversification are relatively straightforward – a diversified portfolio allows you to minimise risk and protect your overall assets during wider market and currency cycles.
This is amplified to some degree when you invest internationally. Wider economic circumstances and geopolitical situations influence how you can create gains or insulate losses.
Access to new industries
Some types of industries, stocks and companies may only be available in certain foreign markets. The ASX is heavily weighted towards financial and mining sectors – so for greater access to other sectors, such as tech and IT, you need to look overseas.
If you're looking to invest in these spaces, you'll need a trading platform that offers access to international markets.
One example of this is CMC Invest, whose all-in-one app allows you to trade in 15 overseas markets (as well as Australia), without the need to hold foreign currency.
Extended trading hours
Some investors find the 10am–4pm trading times of the ASX quite restrictive. Other markets around the world are moving while Australia is "asleep".
Accordingly, some platforms that trade international stocks offer extended hours. For example, CMC Invest offers US extended trading hours of 7pm–1:30am and 7am–11am AEST.
Having access to extended trading hours can allow you to better observe market movements as they happen, and buy or sell accordingly. It also allows you to invest in overseas markets (like the US) without the need to stay up until the early hours of the morning.
Currency hedging
By diversifying your investments across a range of currencies, you're potentially able to reduce your exposure to currency fluctuations. A dip in one currency can lead to a rise in another, helping you boost gains in one space and potentially reduce losses in another.
For example, if you hold US shares and the Australian dollar weakens against the US dollar, the value of your US investments in AUD terms will increase.
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💸Cashback
Until November 30 2023, you'll receive $100 cashback when you transfer your existing international stocks over to CMC Invest.
🌏 Access to 16 different markets around the world
Gain access to a wide range of markets worldwide through CMC Invest, allowing you to diversify your portfolio and access new industries without having to hold different currencies.
🕒 Extended trading hours
With CMC Invest, there's no more need to stick solely to the 10am-4pm of the ASX. Trade at your convenience with access to other markets and extended trading hours.
💲$0 brokerage on select stocks
When you trade on the CMC Invest platform, there's $0 brokerage on Aussie shares up to $1000, as well as $0 brokerage on US, UK, Canada and Japan shares.
Getting started
To invest internationally, all you need – in theory – is to have a trading platform that allows you to access international markets.
However, it's important to look at the features and add-ons that a trading platform can offer you as an investor.
To point to one example, CMC Invest offers a range of different benefits to investors that use its service. For example, it charges $0 brokerage on 4 key markets – the US, UK, Japan and Canada. Instead, it charges a 0.6% foreign exchange buffer with each trade.
If you have any existing international stocks – after all, it's not uncommon to dabble before you commit – and you transfer them to CMC Invest before 30 November 2023, you'll also receive $100 cashback.
Through the platform, you're able to access 16 international markets, as well as extended trading hours.
You also have access to Morningstar financial company details, as well as reports and educational materials to help you make informed decisions in different global markets.
Everyone's trading goals are different, so make sure you investigate a range of options. By paying attention to what's included within the platform, you'll be able to make a more informed decision.
It's also important to remember that all the basics of investing still apply. Make sure you're researching the market properly before making purchases and don't invest more than you can afford to lose.
Key markets for new international investors
Japan
Industries: Tech, automotive, manufacturing
Notable companies: Toyota, Sony, Fujitsu
Japan's growth between the end of World War II and the 1980s was staggering. This "Economic Miracle" helped it become the second-largest economy in the world for a time.
Though Japan doesn't occupy quite the same prominence in 2023, it still has huge potential for Australian investors.
With a long history of tech innovation, an enormous manufacturing industry and a major hub for the automotive industry, investment in Japan offers a diverse range of opportunities.
For Australians, Japan can also serve as a gateway to investing in the wider Asia-Pacific region.
The US
Industries: Big tech, AI, natural resources
Notable companies: Telsa, Apple, Alphabet
The US is often viewed as offering a range of investing opportunities that are considered "recession-proof". Natural resources, finservices and tech obviously all have their ups and downs in market cycles – but they are also all essential to the workings of the modern world.
For Australian investors, the US represents a logical jumping-on point. Given the close working relationship between our countries and the strong bases for investment, it can be a great option for Australian investors to branch out.
You can also gain exposure to other international companies that have chosen to list on US exchanges for their global reach; for example, Alibaba is listed on the NYSE.
The UK
Industries: Finservices, pharmaceuticals, FMCG
Notable companies: Astra Zeneca, Unilever, Shell
Though short on natural resources, the UK has carved out a considerable niche for itself in the global economy, with companies such as Rio Tinto, Shell and BHP all listed on the LSE.
Today, the UK has a heavy emphasis on finservices, pharmaceuticals and FMCG exports. For investors looking to diversify their portfolio, the UK offers a significant variety of options.
Canada
Industries: Natural resources, finservices, tech
Notable companies: Royal Bank of Canada, Air Canada, Shopify
Covering similar industries as the US – but with its own distinct local eccentricities – Canada often goes overlooked by Australian investors.
But this shouldn't be the case. Canada is a formidable economy in its own right, offering Australians a selection of attractive opportunities.
With a wealth of natural resources, banking services and a burgeoning tech investment space, Canada offers many of the advantages of US and UK investment, while avoiding some of the pitfalls associated with both.
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