For many investors there is no mystery in why investing in international stock markets are an appealing option. In a nut shell: more risk, hence, more gain. But not all is risk; in fact, you’ll find that investing in stock markets abroad can be pretty reliable. So the reasons why people don’t wander off into stock markets beyond US boundaries aren’t really risk related. It’s probably more related to ignoring the how and why. So unveiling some of these unknowns may very well be for you the first step into a vast world of financial opportunity.
1) Emerging countries are especially lucrative: The term ‘BRIC’ refers to the economies of Brazil, Russia, India and China. These markets are on the rise and therefore offer very lucrative opportunities of investment. We are talking about a market and work force of over 40% of the world’s population. Even in these times of global crisis they still manage to grow economically. And depending on where you invest there are some really safe bets.
2) Diversifying your portfolio: You know the advantage of diversifying your portfolio. If a certain industry takes a plunge or is going through a crisis, by staying spread out enough, you keep your returns decent and you reduce the risks. This is also true and can be applied geographically. When you diversify into different markets then the events that occur in one specific economy will have less effect on your general portfolio.
3) Low costs and high volumes: These emerging economies usually have lower production costs and have vast natural supplies. Take China for example in manufactured goods or Brazil’s commodities, Russia’s gold unexplored still way under its full potential. India has the third largest stock exchange in the world. Besides, commodities and large markets will always be lucrative in the long run.
4) High Profits: Let’s take a look at Brazil’s market: There are some very reliable and large companies out there. Take mining giant ‘Vale do Rio Doce’ for example, we are talking about the largest iron ore mining company in the world. Along with Petroleum company ‘Petrobras’ they make up the majority of papers in the Brazilian stock market’s main index, IBOVESPA. Over the past 5 years they have had an average valorization of 450%. Another Brazilian mega mining company ‘Usiminas’ had a valorization of an amazing 1,600% over the last 5 years. You can actually benefit from a certain volatility that these markets offer and still be playing it rather safe.
5) Unique Small cap opportunities: Finding a buried treasure is a common place in fairy tale but it’s not a really good option in real life. Nevertheless, investing in small cap stocks, in my opinion, is the closest you can get to the experience. Given that there is always a higher risk in small cap stocks you can reserve a lower percentage of your investments to these stocks. But picking the right one can result in the investment of a lifetime. Remember that companies such as ‘google’ or ‘Wall-Mart’ once started off as small cap stock. There is an abundance of these companies waiting to be discovered in the international markets.
6) Easy access: In today’s globalized world finding information and being well informed of events and progress in foreign economies has become exponentially easier. The notion of ‘real time’ makes distance virtually inexistent. As we know lack of information is hardly a problem nowadays. All this is an important reassurance when weighing out the pro’s and con’s of investing abroad. Being able to make informed decisions when allocating your capital is definitely an advantage.