Question

What do you think about investing in foreign stocks? Are they as safe as U.S. stocks? Are they as profitable as U.S. stocks? What are the personal risks? Be sure to back up your opinions with data.

Answer 1

Investing in foreign stocks could be rewarding at times when the global markets on the bullish momentum. This could be reflective through the past bull run of this decade.

Investing in foreign stocks is not just about the stock picking but it is also a Play against the foreign exchange risk.

It could be especially high rewarding when investment is made into the emerging markets which are under penetrated . When the global markets are on a bull run, these markets tend to outperform the larger markets as there are easy access to credit and the domestic companies get easy foreign credit to fuel their growth. The relative strength of dollar also goes down during such times. It could be seen When markets like argentina and Indian markets grew almost double in previous Global Bull run outperforming American markets.

They are not as safe as American stocks because there are a lot of corporate governance issues. There are a lot of political risk and there is high manipulation of books of accounts. There are less disclosure requirements as well so Investors need to be highly skeptical to invest into such stocks.

There are lots of risk and lots of rewards in investing into such foreign security . If one really finds out the dark horses when the global economy is about to take off , the return can be humungous but timings has to be right else there can be a huge destruction of capital.

The personal risk involved with such Investment that there is high level of uncertainty and management are not transparent In disclosure of information. There is a high level of political intervention as well . Foreign currency risk can also impact the rate of return .

So it is a highly thoughtful process to Invest in global security outside U.S but it is associated with a high level of risk as well.