Question:  What is the goal of the site?

Answer:  The goal is to equip the individual (or retail) investor to invest in foreign markets through individual stocks, ETFs or mutual funds.  Whether you invest directly yourself or work closely with a financial advisor, this site will help you understand the market, its composition of companies, the political environment and more.  Most information is provided free of charge.  Over time published material will be added on a country by country basis that provides in depth analysis of a countries economy, government, or history.  These may require a fee to access but at a price appropriate for the individual investor. 

 

Question:  How is it unique from other financial websites?

Answer:  This website was started because nothing else existed on the web to provide introductory information on foreign markets.  Daily news can be found on individual companies, even ones headquartered in places like Japan or France (where local language usage is emphasized). Brokerage houses provide reports on single companies, but where does an individual investor go to get a primer on a country, its “national champions,” and the key information that defines its stock market? Would a change of the ruling party in Japan be good or bad for your investments there? I can get a 9% yield on a stock in Australia; is that typical? The Individual Global Investor website will provide these answers in one place.  With the context understood, it should be a launching point for the great world of information on the web.

 

Question:  Why do you look at China through Hong Kong and the Hang Seng Index?

Answer:  A decade or two ago, listing on the Hong Kong exchange was only way for large Chinese companies to access foreign capital and for non-Chinese investors to invest in China.  Today, with the rise of the Shanghai and other local exchanges, other options are possible.  But due to risk and transparency issues, we choose to look at China and Hong Kong through the lens of the Hang Seng Index. Most of the commercial and financial giants like PetroChina, ChinaMobile, and Industrial & Commercial Bank of China are listed in Hong Kong and are contained in the Hang Seng Index.  For non-Chinese speaking foreign investors this is the lowest risk path to access China.

 

Question:  Why don’t you cover emerging market countries like India and Russia?

Question:  How do you decide what countries to cover?

Answer:  We focus first on the developed markets and will add countries over times that are closer to emerging markets.  See the section on FT Global 500 for a description of what countries the top companies come from.  Keep in mind that many of the top companies in world operate around the globe and have significant operations in both the developed and developing markets.  Developed economies still represent 80-90% of the global market value.  For example, countries like Russia still have significant political and economic risk as demonstrated by the occasional currency devaluations and the occasional nationalization of private company assets in the oil industry.

 

Investor protection, regulations, and public disclosure of information vary greatly from country to country and tend to be stronger the more developed the market.  The events of 2008 showed, however, that companies from even the most developed markets are not free from fraud or mismanagement.  In spite of this example, though, investment risk rises substantially in countries where investor protection is weak such as emerging markets.  We are not cautioning to refrain from investing in emerging markets altogether.  Simply, we advocate investing first in developed markets and then in emerging markets, and then at a ratio of at least 5 to 1. 

 

Question:  What is a stock market index?

Answer:  An index is collection of stocks, chosen to serve as an appropriate representation of some market.  It serves as a benchmark for the stock markets performance.  These are often managed by third party companies such as newspapers like the Wall Street Journal (Dow Jones Industrial Average) or the Nikkei in Japan (Nikkei 225).  Others are managed by dedicated companies like FTSE or the stock exchange itself (DAX and SMI).  Companies that make up country indices are chosen to best represent the dynamics of the market.  They tend to be the largest and most highly traded shares so putting your money in and getting it out is easy. 

 

Once an index has been established, mutual funds and exchange traded funds (ETFs) are established to track that index, allowing investors to easily invest in the index.  There tends to be one to three key bench key indices per national market.  The DJIA, S&P500, DAX, CAC40, Nikkei, and HSI are examples of recognized national market indices.  There are many global indices but none are broadly recognized as leading.  We focus on the FT Global 500 at a global level and S&P often for national markets.  This is done partly for practical reasons as the FT and S&P makes information publicly available about them quarterly in concise reports.  Other companies that provide global, regional, and national indices are FTSE, MSCI, and Dow Jones. 

 

Question:  Where do I start investing?

Answer:  The first step is to have a brokerage account (either discount or full service) from any number of financial companies.  Most provide online access, low trading fees and research on individual companies.  It is recommended that most people should start with broadly diversified funds invested in their home country.  This website assumes that you have done that already.  Most book stores have good introductory books on investing in your local market.  Once you are ready to diversify globally, you are ready to start utilizing this and other websites.  Great information about foreign countries can be found at websites of that foreign government (central bank, bureau of statistics, etc.), the local stock exchange (TSX, ASX, TSE, NYSE, etc.), and international organizations like the IMF and the BIS.  See the Links page for many of these. 

 

Many mutual fund companies provide access to foreign markets through actively managed and passively managed funds.  Actively managed funds work to “beat the market” by choosing undervalued or growing companies that they expect to outperform (rise in price faster than) the market.  This effort costs money and the expenses on these funds tend to be higher.  Passively managed funds avoid this all together and simply are a collection of stocks that match the leading index.  These tend to have lower expense ratios.  You should consider mutual funds as a starting point.  Please refer to Lipper or Morningstar for their research on mutual funds.  Additionally, foreign companies list their shares on exchanges in other countries.  In the US these are known as ADR or ADS (see next question).  This is a great way to invest in individual foreign companies.  Lastly, the most enterprising investor can open a global investment account with a company like Merrill Lynch, Charles Schwab, or E*Trade.  These allow you to access stocks directly on foreign exchanges. 

 

Question:  What is an ADR or ADS?

Answer:  In the United States local listings of foreign companies are called American Depository Receipts and American Depository Shares.  These shares trade in identical fashion with shares of local companies.  One concern, however, is volume.  In most cases, ADRs and ADSs have volumes that are a mere fraction of the trading of the company’s shares on its home exchange or as compared to a similar local company.  This can make large trades difficult.  Also bear in mind that, even though ADRs are traded in US dollars, they track the value of the shares in the home country in that local currency.  Thus you are you are exposed to exchange rate risks.  A sharp move in the exchange rate between the home country currency and the US dollar will result in a similar move in the ADR relative to the home country share price. 

 

Question:  What is the right asset allocation?

Answer:  The answer to this question depends on the individual, the timeframe of their investments, and their risk tolerance.  It is important to think about many asset classes and not simply equities (corporate stocks) but also bonds and commodities.  Within stocks, though, many advocate that the best diversification comes from matching the distribution of company share value around the world.  This means investments in US companies should be between 40% and 50%, the remainder should be in countries outside of the US.  Given that non-US developed markets are much larger than emerging ones, the allocation should be five times greater.  On the home page we reference a recommendation by Wall Street veteran Charles Ellis of Greenwich Associates (and author of Winning at the Loser’s Game) who in a Sept 15, 2008 Barron’s interview recommended US: 45%, other developed markets: 47%, and emerging markets: 8%.  It is not necessary to adhere to this with +/- 1% accuracy but the rough proportions are a good guide.

 

Question:  How much information do companies provide to foreign investors?

Answer:  This varies greatly from market to market, industry to industry, and company to company.  The larger and more global the company the more information they tend to provide.  For example, companies such as Sony of Japan and TSMC of Taiwan provide all investor updates and hold quarterly earnings calls in multiple languages including English.  They provide information in local currencies and in US Dollars.  It is common for large global companies from any country to provide annual reports in English as well as their local language.  European companies are particularly good at this.  Lastly, all companies that list on US exchanges through the use of ADRs are required to file detailed financial reports with the US Securities and Exchange Commission.  This file is called the 20-F and is similar to the annual 10-K report that American companies must file.