Financial advisors are right when they say that you need to diversify your investment portfolio. This is good advice, since by doing so you will spread your risk and also have a better chance of realizing profits. However, you are missing out if you’re only investing in your domestic or local market.
There is a big world out there awash with investment opportunities, and investing abroad is a smart move. You can opt to invest in sectors and stocks that operate internationally or invest in stocks found in other markets around the world.
These foreign markets can offer surprising bargains. You will need to conduct adequate research to know which markets have viable investment opportunities. Basically, you have the option of investing in three different types of markets. These include:
Developed markets. This describes markets such as Australia, Japan or the US. Such countries are highly industrialized and have well-developed economic systems. Although developed markets are considered the safest and most stable destinations for investment, their growth rates are often far behind those of emerging or frontier markets.
Emerging markets. These are found in countries experiencing high economic growth coupled with rapid industrialization. Good examples include Brazil, China and India. Investing in these markets can lead to higher returns compared to mature, developed markets. On the downside, emerging markets are volatile places to invest and come with higher risks.
Frontier markets. These are considered smaller than both emerging and developed markets. They may also be found in countries that place limitations on how much foreigners can invest. Although they can be risky investment options, they can surprise you with higher-than-average returns and are excellent choices if you are building a more diversified portfolio. Examples of current frontier markets include Nigeria and Kuwait.
All these types of international stock markets have some level of volatility. Emerging and frontier markets are especially vulnerable to a massive range of factors, and you need adequate research to judge if their political and economic climates are conducive to making a successful stock investment.
So how can you spot the perfect opportunity for international investment?
Firstly, you need to have the right mindset before investing in international stocks. You need to invest with a long-term mindset. Instead of looking at sectors that are performing today, focus on those that are likely to be high-performers in a decade or two. Search for companies that have higher profit margins and fast growth prospects.
In order to do this, you need to get assistance from local experts who understand their native markets and how they are likely to perform in coming years. For instance, the relations between the US and Iran have thawed out, opening investment opportunities for those interested in the Middle East. Investors would do well to seek out the services of professionals such as Shahram Shirkhani. Shahram is an international legal consultant with a wealth of experience helping large companies organize international expansion and investments. He understands the inner workings of the Middle East market, and his advice would be invaluable to an investor.
You should also consider checking a country’s credit rating from rating agencies such as Standard & Poor or Moody’s. Countries with higher credit ratings are considered safer to invest in than those with lower scores. Additionally, consult one of the excellent sources of information on the political and economic fortunes of foreign countries. These could be newspapers such as the Financial Times or The Wall Street Journal. You can also get extensive coverage on particular countries from the internet.
Regardless of the method you choose, ensure that you have thoroughly evaluated your target country’s risk for investment. Spotting the right time to enter a market is a vital skill that can be honed over time. Generally, if you have the appetite for it, investing in international stocks can be quite rewarding in the long-term.
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