Some of the best opportunities for private investors are increasingly not in the UK, but abroad.
In the EU, Germany’s stock exchange is looking ever more healthy, and there are interesting plays around in the rest of Europe if you’re prepared to research.
Further afield in the emerging markets, the risks are higher, but the rewards are mouth watering: Korea’s benchmark Kospi index is Asia’s top performer this year, up nearly 40%. So how do you get access to all these markets?
Invest in foreign markets: ETFs
Investors with an eye for more obscure foreign markets should look at Exchange Traded Funds (ETFs). These equity-based products combine the characteristics of a share with those of a collective fund, tracking a group of shares or an asset, and unlike most funds, the shares held are defined in advance – which means that when you buy, what’s in the fund stays in the fund. But advisers don’t get commission for recommending them, so though they are a fast-growing type of investment that can be bought and sold in the same way as shares, you’ll have to do some of the work yourself.
ETFs can be a good way to get exposure to non-US and European markets – iShares manages a Taiwan tracker, a Korean tracker and a Japan tracker – and costs are low, typically around 0.5% (compared to about five times that amount for actively managed mutual funds).
For specific stocks, it’s quite easy to buy shares on foreign bourses, but harder to do it cheaply. Interest in more exotic stocks tends to be specialised, and regulations in different countries vary along with exchange risk, so most brokers will hike up commission and other charges.
One short-cut is to check if the stock has a dual listing on a Western exchange, but for a truly obscure share, be prepared to do research and fork out.
Invest in foreign markets: CDIs
For straightforward trades in the US and Europe, you shouldn’t have any problems. The London Stock Exchange (LSE) runs the International Retail Service, which gives access to nearly 350 European and US blue-chip stocks. The IRS works the same way as standard quote-driven UK trading; there are no additional charges and trades are settled in sterling on Crest, the LSE’s clearing house, so exchange rates are kept out of the equation. Many non-IRS stocks can still be settled through Crest, and are known as Crest Depository Interest stocks (CDIs).
There are over 14,000 shares that can be traded as CDIs and the full list is at www.crestco.co.uk. All this means that you should simply be able to call your broker and trade these foreign shares just as you would UK shares.
Not all brokers use Crest, but this is not a sign of weakness. American Express Investments, for example, uses local agents in the US and Europe instead, so US shares are traded in dollars and are simply listed alongside sterling investments in your portfolio. And because they can be traded during the opening times of that market, you don’t miss out on any late bursts of activity.
Invest in foreign markets: fees and charges
However, if you are trading overseas stocks you do need to check broker charges. There is often an overseas bargain or settlement charge added to commissions. This varies between brokers, and can be an unpleasant shock if you’re not expecting it.
Then there are additional costs, such as inactivity fees, if you don’t trade much, as well as management fees. Five less-expensive brokers are: American Express Investments (£12.50 to £20, US and European markets); Hargreaves Lansdown Vantage Active Trader (flat rate £9.95 in US and European markets for IRS stocks, plus £12.50 per quarter account-management fee); Idealing (flat rate £9.90 across all markets); Sharecrazy (flat rate £9, for CDIs only); Squaregain (flat rate £12.50 for Europe and US).
Five brokers who deal overseas – and where they trade
American Express Investments
Access via the NYSE, Nasdaq, Amex, Deutsche Borse AG, Euronext Amsterdam, Euronext Paris SA, Stockholmborsen and Borse Italiana SpA. Also offers a choice of settlement currencies including sterling, US dollars, euros and other European currencies. Go to www.sharepeople.com or call 0870-737 8000.
Squaregain
All Crest-equities in US, Frankfurt, Paris, Amsterdam, Brussels, Luxembourg, Zurich, Vienna, Milan, Lisbon, Madrid, Stockholm, Oslo, Copenhagen, Helsinki, Dublin, Toronto. Go to www.squaregain.co.uk or call 0870-600 6044.
Barclays Stockbrokers
All US (NYSE, Nasdaq, Amex and OTC) and Canada (Toronto and venture markets). In Europe, Frankfurt, Paris, Amsterdam, Milan, Brussels, Madrid, Zurich, Stockholm, Copenhagen, Vienna, Oslo, Helsinki, Lisbon and any others in western Europe. Also Japan, Australia, New Zealand, South Africa, Hong Kong, Thailand and Singapore. See www.stockbrokers.barclays.co.uk, 0845-608 9000.
Internaxx
All US, Toronto, Frankfurt, Stockholm, Brussels, Paris, Zurich, Amsterdam and Madrid. e10,000 maximum for Frankfurt, Brussels, Milan and Amsterdam. Go to www.internaxx.lu, or call 00 352 2603 2003.
TD Waterhouse
Nasdaq, Amex, NYSE, Frankfurt, Paris, Amsterdam, Brussels, Luxembourg, Zurich, Vienna, Milan, Lisbon, Madrid, Stockholm, Oslo, Copenhagen, Helsinki, Dublin, Toronto. Go to www.tdwtrader.co.uk, or call 0800-169 8899.