Is it better to invest in a Foreign Market?

In order to answer this question we have answer 3 important question liquidity, availability and cost.

  1. Trading Volume = LiquidityScreen Shot 2017-07-02 at 4.10.12 pmScreen Shot 2017-07-02 at 4.16.16 pmAs you can see the STI trading volume only bounces below the $500 million dollar mark while the SPX (S&P) bounces around the $10 billion dollar mark. Higher the trading volume = Greater liquidity in the market. Liquidity in this context talks about the easiness to buy and sell shares that you own.
  2. Number of listed companies = Greater number of opportunities
    Screen Shot 2017-07-02 at 4.37.08 pm.jpg

    StraitsTime

    Currently we have 759 listed companies in Singapore.
  3. Cost of trading overseas = reduce your profit“A capital gain is realized when a capital asset is sold or exchanged at a price higher than its basis. Basis is an asset’s purchase price, plus commissions and the cost of improvements, minus depreciation. Similarly, a capital loss occurs when an asset is sold for less than its basis. Gains and losses (like other forms of capital income and expense) are all measured in nominal terms—that is, not adjusted for inflation.Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Taxpayers in the 10 and 15 percent tax brackets pay no tax on long-term gains on most assets; taxpayers in the 25-, 28-, 33-, or 35- percent income tax brackets face a 15 percent rate on long-term capital gains. For those in the top 39.6 percent bracket for ordinary income, the rate is 20 percent. Short-term capital gains are taxed at the same rate as ordinary income. There also is a 3.8 percent tax on net investment income for single taxpayers with modified adjusted gross income above $200,000 ($250,000 for married couples filing jointly). Note, too, that capital gains in some cases face an effective tax rates above the 23.8 percent statutory rate because of phaseouts in the tax code.” – Taxpolicycenter.org

    Remember trading in foreign market with a local broker tends to have a higher commission due to Forex risk.

Conclusion:

It is important to have liquidity in the stock that you purchase as this will provide the “easy-ness” of selling/buying your stock. Additionally, In a more crowded market, you will tend to find  “cheaper” and “better” companies as compared to a small market. Then again, you might find more exclusive stuff in a smaller market. Remember the value of the company have to always outweigh the cons ( Tax & Commission).

“+ 1 Knowledge point”

 

 

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