The world has become a global village and so have the global markets. Nowadays, investors can invest their money across boundaries, territories, continents, and horizons. This has broadened the investment options and markets that investors have. While some local investors continue to contemplate on the risks that come with investing in international markets, others continue to enjoy the benefits.
Benefits of Investing in International Markets
Investing in International markets helps investors to diversify their portfolios. Instead of limiting yourself to only local companies and local markets, you can spread your risk by investing in foreign markets and foreign companies. In this way, even when your local markets are performing poorly due to unfriendly internal conditions, you can always benefit from thriving markets elsewhere.
Investing in foreign markets gives investors the ability to tap into emerging markets and industries across the world that have huge growth potential. This gives investors the ability to invest in emerging trends and markets in other regions of the world.
Wide Range of Investment Options
Investing in foreign markets allows investors to invest in asset classes that may not be available in their country. Like the index funds that are not available in Kenya. It also gives you more companies to invest in besides allowing you to invest in even the biggest and most profitable companies in the world.
It also allows you to invest in other industries or market trends that may not be available in your country. For example, as a Kenyan investor, you can invest in the microchip industry by investing in a Company like NVIDIA in the United States.
Diversification of Currency
The US dollar has been doing well as compared to the Kenyan shilling. This may provide a Kenyan investor investing in the US markets an opportunity to enjoy currency appreciation when the US dollar performs well as compared to the Kenyan shilling.
Risks that Come With Investing in Foreign Markets
Investing in international markets is a double-edged sword. On one side it offers you better opportunities for you to tap into the emerging and best-performing markets in the world. On the other hand, it also exposes you to risks that you could not have faced while sticking to investing in the local markets. Here are some of the risks that come with investing in international markets.
Understanding International Markets
As a foreigner, you may find it difficult to understand how different markets in different countries work. You may not understand the social, political, and economic factors and how they affect market performances. This may affect your performance in the international markets.
While different countries treat foreign investors differently. You may enjoy tax benefits in some markets but in most international markets, foreigners are taxed heavily. For example, Kenyan investors investing in US stocks are charged a mandatory withholding tax of 30% on their returns.
Recently, the Russian Invasion of Ukraine has led to most global companies exiting the Russian market and the Russian Stock Exchange being temporarily shut down. The Russian Ruble has also depreciated as a result of the negative impact the invasion of Russian troops into Ukraine has had.
Investing in foreign markets exposes you to such risks that are a result of geopolitics.