Investing abroad: the channels

What are the channels available for “retail” investors to invest in overseas stock markets?

In general, there are four channels:

a. Online stockbrokers

Investing in overseas stock markets directly through an online stockbroker is probably the cheapest option available. However, the investors have to go through the hassle of transferring money overseas and keeping the money in the stockbrokers’ trust accounts before online trading is possible.

b. Local unit trust funds that invest overseas

Investing in overseas stock markets through a local unit trust fund is probably the easiest way. However, most of our local fund managers do not have enough experience in overseas investing. The hidden costs, i.e. brokerage, handling charges, foreign exchange cost, custodian fees, etc. could be high. Such high hidden costs will affect the performance of the funds.

c. Local stockbrokers

After the recent amendments of Securities Commission’s guidelines and liberalisation of Bank Negara Malaysia’s Foreign Exchange Administration Rules, local stockbrokers are allowed to help their clients to buy and sell overseas stocks directly from foreign stockbrokers in foreign stock exchanges. Once the local stockbrokers establish their infrastructure and connections with overseas brokers, we will be able to buy overseas shares through them. Since a transaction goes through two stockbrokers, i.e. one local and one foreign, the transaction costs can be high.

d. Private equity/ wealth management services

Many banks offer private wealth management or private equity services to high net worth individuals in investing locally and abroad. Again the costs can be high.

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