The rise of global behemoths like Apple, Netflix, Facebook, Tencent, and Tesla, have lent new vigor to the idea of foreign investments. For instance, if you had bought Netflix stocks worth $1,000 during its IPO in 2002, your investment (after Netflix stock splits) would be worth more than $470,000 as of December 2020. That’s only one specific case from a developed market like the US.
Global investing is a segment that includes not only developed markets but also other markets, like those of the developing countries (China, South Korea). Fortunately, investing in the US markets also enables access to global markets indirectly. For people who are just starting with international investing, it is important to familiarize yourself with the many facets of global investments.
Important things to know before starting investing internationally:
1. Who regulates the US stock market?
The US stock market is regulated by the SEC (Securities and Exchange Commission) and FINRA (Financial Industry Regulatory Authority). These bodies ensure that oversee various institutions in the market and ensure regulation among coordinating parties. The US market has several Self-Regulatory Organizations (SRO) as well, such as the stock exchanges, that create and enforce industry regulations and standards.
2. Trading Hours
US markets operate from 9:30AM to 4PM Eastern Standard Time on trading days.
The list of holidays observed by the US exchanges can be found below:
- NYSE: https://www.nyse.com/markets/hours-calendars
- Nasdaq: https://www.nasdaq.com/market-activity/stock-market-holiday-calendar
3. Number of stock exchanges in US
The New York Stock Exchange (NYSE) and Nasdaq are the two major stock exchanges in the US. The Nasdaq is a popular exchange for technology companies, and some of the largest companies, including the FAANG stocks, are listed on Nasdaq.
Beyond these two, there are several other exchanges such as Chicago Board Options Exchange (CBOE), Chicago Mercantile Exchange (CME), and International Securities Exchange (ISE).
4. US stock market gives access to international markets
With access to the US markets, investors can build a truly diversified global portfolio. Several large global companies are listed on US exchanges, such as AstraZeneca, Novartis, Unilever, and Diageo from Europe, as well as Sony, Toyota, Honda, and Alibaba from Asia.
In addition to international companies that are directly listed on the US exchanges, investors also have the option of building a global portfolio via the Exchange Traded Funds (ETFs) route. These ETFs provide diversified access to specific geographies, such as China, Latin America, and Europe. Some ETFs on offer also provide thematic exposure to these international markets.
5. Currency exchange rate
The currency exchange rate between your country and the country you invest in can impact your profits if you invest in international markets. For example, if you invest in the US, your returns and dividends will be in dollars which will then be converted to the Indian Rupee at the rate of exchange at the time of conversion. It’s therefore important to understand the impact of currency fluctuations on your portfolio. Historically, the rupee has lost value against the dollar, leading to amplified returns for those investing in the US stock markets.
6. Taxes
Before investing in international markets, it’s key to understand how the taxation structure and process work as different countries have their own set of tax laws.
For Indians investing in the US, there is a Double Taxation Avoidance Agreement (DTAA) between India and the US, which means you will not be taxed twice on the same income.
In terms of the specific tax rate applicable in India for US investments, you can read about it here.
Additionally, here's a link to help you figure out the exchange rate to be considered while filing your tax returns.
7. Annual limit as per the Reserve Bank of India
As per the Reserve Bank of India (RBI)’s Liberalised Remittance Scheme (LRS), an individual can invest up to $250,000 per year in overseas markets.
You can read more about the LRS and regulatory aspects of overseas investing in our blog on the topic.
The above-mentioned points are a few key areas that you should be thorough with before you start investing in international stocks. In case you want to read more on how to start investing in the US, here’s more information.
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