Big companies may love to outsource and do foreign investing, but even private individuals can invest in emerging markets without being a business. While foreign market stocks can carry higher risks, they can also carry a higher rate of return. You don’t have to have huge amounts of money to open a foreign factory or to get a business visa from a bustling foreign economy. You can just do a little stock trading and enjoy some of the same benefits of emerging economies by investing in them while you remain at home. Here are a few ways to get started in foreign emerging market investing.
Due to the high growth rate of emerging economies, many mutual funds now include some foreign companies in their mutual funds mix. International stock funds do carry a risk due to currency fluctuation, but you can invest in hedged funds if you don’t want the higher exposure. You can look for funds that specifically invest in foreign markets or for funds with U.S. companies that have a large footprint in emerging economies. Either strategy will diversify your portfolio to take advantage of increasing activity in emerging markets.
Exchange Traded Funds (ETFs)
This type of investing vehicle operates more like a regular stock purchase than a mutual fund. They can be traded on the stock exchange, unlike a mutual fund. However, they do provide the same type of broad diversification that makes a mutual fund attractive. ETFs allow foreign investors to not just buy them, but also to short them and trade them on margin. The expenses can be lower than buying mutual funds, too.
American Depository Receipt
If you have a particular company you want to invest in, you can also seek out the stock from your broker or investment bank, instead of buying an ETF or mutual fund. Some online brokerages will also have access to individual foreign stocks, but they may not have the one you want. That’s where you will need to get an American Depository Receipt (ADR) via an investment bank that has bought set number shares of that company to be traded in the domestic U.S. stock market.
If you can’t find a broker or a bank that has the ADR available for investing, you can still try to buy your shares via a foreign broker. You will have to set up a foreign brokerage account, but it is perfectly doable. There are more risks associated with doing it this way as you may be restricted in how you can take the funds out and how you will be taxed.
The currency fluctuation can also hammer your returns. Thus, for any avenue taken in foreign investment there are risks and rewards as well as limitations. With several different options available, however, even a small investor can have access to foreign stocks if they want to engage emerging markets to diversify their investment portfolio at home.