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Global Stock Trading Imperatives (Part 1)

25 January 2008 - Features - Editor

Online stock has yet to impact global stock investment, but entries by all reputable stock brokers is set to make this form of stock trading grow by leaps and bounds. Individuals have been rather slow in diversifying their portfolios, but the major financial institutions would have been hit even harder by the sub-prime crisis, had it not been for their foreign investments. The World Bank has paved paths for private capital to play defining roles in the developments of emerging economies, most of which now have Gross Domestic Product (GDP) growth rates between 5% and 10% a year.

The steadily declining value of the dollar is a cold shower for investors new to foreign stocks. However, the dollar slide could fall on even sharper slopes as an election year, rising health care costs, and continuing military engagements abroad will probably do little to help matters. Building dividends and capital in Euros, UK pounds, and in Swiss Francs, have become urgent priorities for all US investors. Parts of the Middle East, Brazil, China, India, and Russia, are key economies with exciting prospects for stocks. It is not as though US stock exchange listings are entirely bereft of value, but it is time to move some eggs to other country baskets.

International Stock Investment Routes

Mutual funds and Exchange Traded Funds (ETFs) are the most convenient ways for novices in international stock trading to export parts of their portfolios to other countries. ETFs offer more learning opportunities for stock investing enthusiasts, because it is relatively easy to see through their daily purchases and sales of international stocks.

An extreme form of global stock investment is to participate in a foreign stock market directly. The U.K. and Australia are top destinations for US stock investors, though language barriers should not deter you from looking at Germany and the Scandinavian belt as well. Stock trading conditions are less familiar in places such as Dubai, Mumbai, Kuala Lumpur, and Shanghai, though Singapore and Hong Kong are more comforting for those accustomed to US stock market norms. A half-way house between direct foreign stock investment and a Mutual Fund or an ETF focused on a foreign country, could be the Advance Depository Receipts (ADRs) of foreign companies held by financial institutions, and traded on the US stock exchange circuit. You get your dividends in dollars, so this is a convenient way of participating in an exotic country, without some of the risks of direct stock investing.

Buying stocks of US corporations with integrated and profitable operations abroad, is possibly the optimal way to move a part of any portfolio abroad. You have all the benefits of US stock market security, but can be a part of the action wherever the company in which you hold stock operates. Such corporations are best positioned to hedge global risks.

Global Stock Trading Imperatives (Part 2)

 


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