Key Takeaways
- The Australian sharemarket represents only 2% of total global market capitalisation. Investing internationally provides exposure to the remaining 98% of world opportunities.
- International markets provide superior access to high-growth sectors like technology and healthcare that are under-represented on the ASX.
- Investors can buy international stocks in Australian dollars during local trading hours by using ASX-listed Exchange Traded Funds.
- Global investments are affected by the value of the Australian dollar. A weaker local currency can boost the returns of your international holdings.
- Direct international trading offers the widest range of stock selections but requires more complex tax reporting and administration than local alternatives.
Most investors in Australia are heavily weighted to Australian stocks. This is often due to the ease they are accessed, superior tax benefits and familiarity. However, the Australian sharemarket represents approximately 2% of the world’s sharemarket capitalisation. By limiting yourself to Australian stocks you may be missing out on many opportunities, especially in the healthcare, global brands and technology sectors. This is a core reason why many consider broader investment advisory services to find global growth.
How To Access Overseas Markets From Australia
So how can you invest overseas? There are several pathways depending on your goals and your financial planning needs.
Exchange Traded Funds (ETFs)
The first way you can access overseas markets is through an exchange traded fund. This involves investing in an ETF listed on the ASX that has underlying investments in and exposure to a basket of overseas stocks. This may be buying an ETF with exposure to an index, such as the S&P 500 or a specific sector such as Cybersecurity.
Transferable Custody Receipts (TraCRs)
A few years ago, Chi-X introduced TraCRs into Australia. TraCRs (Transferable Custody Receipts) allow you to purchase a beneficial interest in underlying ownership of a US listed share. Chi-X currently has 41 different TraCRs over US companies you can purchase from some of the world’s largest brands. The benefit of this is it allows you to buy a beneficial interest in and right to convert into shares in these companies on an Australian exchange, in Australian market hours using Australian dollars.
Direct International Shares
Finally, you can buy international shares directly through many brokers. This will allow you to buy almost any stock. However, it may be more expensive and complicated than the first two options. Our stockbroking team can assist with setting up the necessary accounts to trade on global exchanges.
Key Risks and Considerations For Global Investors
While there are many benefits to investing overseas, it is also important to consider the additional risks and disadvantages of investing overseas. Currency fluctuations will have an impact on your investment returns. There may be additional paperwork that is required to be completed and additional costs.
There may be additional tax consequences of your investment. Different rules and reporting standards may be required for companies overseas. Working with a professional ensures these risks are managed effectively within your portfolio.
Things to consider
Whist there are many benefits to investing overseas, it is also important to consider the additional risks and disadvantages of investing overseas. Currency fluctuations will have an impact in your investment returns. There may be additional paperwork that is required to be completed and additional costs. There may be additional tax consequences of your investment. Different rules and reporting standards may be required for companies overseas.
Find an Adviser
Expanding your portfolio into global markets requires a strategic approach to manage currency and tax risks. Our team can help you identify the best international opportunities to suit your goals. Find a Morgans adviser today to start your global investment journey.
Let Us Help
If you are interested in discussing retirement planning please contact Morgans Mackay today by calling (07) 4957 3033 or visiting the Morgans Mackay webpage.
Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited (Morgans) AFSL 235410 ABN 49 010 669 726 as general advice only and is made without consideration of an individual's relevant personal circumstances. Morgans, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.
Frequently Asked Questions
How can Australians buy US stocks like Apple or Amazon?
Australians can buy US stocks directly through a brokerage account that offers international trading. Alternatively, you can use ASX-listed ETFs that track the S&P 500 or buy TraCRs that represent a beneficial interest in specific US companies during Australian trading hours.
What is the easiest way to invest internationally?
The easiest method for most investors is through ASX-listed Exchange Traded Funds (ETFs). These allow you to buy a diversified basket of international shares in Australian dollars without needing to open a foreign currency account or deal with international tax forms.
Do I have to pay tax on US shares?
Yes. You are generally required to pay tax on dividends and capital gains. If you trade US shares directly, you will typically need to complete a W-8BEN form to reduce the amount of US withholding tax on your dividends. You must also report these earnings in your Australian tax return.
How does currency risk affect international investments?
If the Australian dollar rises against the currency of your investment, the value of your asset decreases when converted back to AUD. Conversely, if the Australian dollar falls, the value of your international investment increases. This can significantly impact your total returns.
What is a TraCR on the Australian market?
A TraCR (Transferable Custody Receipt) is a financial product that allows you to trade a beneficial interest in a US company on an Australian exchange. They are traded in Australian dollars and provide the right to receive dividends and other corporate benefits from the underlying US share.
