At the beginning of 2014 I decided to open an account with the international desk of Commonwealth securities.
I did so in order to retain ownership of ten thousand shares in Linc Energy after it shifted its listing from the ASX to the Singapore Stock Exchange (SGX).
I did not do so lightly. On the positive side, I avoided selling my share-holding when the shares had been dumped by many Australian shareholders, and were at an all-time low. In my opinion Linc Energy have significant reserves of coal, shale oil and gas, as well as conventional petroleum deposits. In addition they have a number of potentially fruitful exploration licences globally, and are pioneers of a significant new technology for converting inaccessible coal deposits into the cleaner energy gas product syngas, or into synthetic diesel and aviation fuel. I believe the risk of further down-side of the share-price is more than covered by upside potential, if the market re-rates it according to its assets.
I am neither a professional investor, nor a qualified adviser. My goal is to share information and my perspective as a retail investor, of including a direct investment in some international shares in my portfolio. I will seek to assess the wisdom of my choice, by reviewing my thinking in the wake of this decision. .
There are several reasons why investors might choose to include some international shares/ securities in their portfolio. In fact more and more investors are doing this in one way or another..
- To facilitate diversification of portfolio across all sectors and markets
- To better match the Selectivity of investment to market opportunity.
- To avoid having to invest in companies listed on the ASX with limited liquidity.
- To increase profits from larger capital gains possible in a larger market with more price volatility.
- To invest in the world’s most profitable companies – ranked as global titans.
- To follow internationally renowned investors, such as Warren Buffet.
- To hedge against currency risks.
- To exploit arbitrage opportunities.
- To invest directly into commodities.
What are some ways Australian retail investors can gain exposure to international markets?
- Invest in large cap Australian companies with global operations such as BHP-Billiton, Rio, Woodside, Leighton Holdings, CSL.
- Invest in ASX listed LIC’s (Listed Investment Companies), and non-listed managed funds.
- Invest in ASX listed Exchange Traded Products (ETP’s)
- Trade almost any overseas market with Over the Counter (OTC) Contracts for Difference (CFDs).
- Direct Investment in International Equities through a broker with an international trading desk.
My choice – Direct investment in International Shares
This choice will inevitably increase the complexity and cost administering my portfolio, and introduce risks, particularly forex risk, from currency movements. However I believe the risks can be managed, and better returns may be attainable with care.
To this end I have decided to:
- Avoid using derivatives to trade international securities.
- Avoid excessive gearing.
- Make provision for all broker charges and requirements.
- Place a portfolio limit of 10% on my allocation to international securities.
- Set a stop/loss position of 15% on any one position.
- Subscribe to news services such as Bloomberg, and Yahoo for specific corporate research, and other market information.
- Subscribe to the charting service of Incredible Charts to be able to use technical analysis on securities in global markets.
- Monitor corporate announcements from the relevant stock exchanges, and from search engines such as Google.
- Choose to invest in countries where I can spend or accumulate the profits from my investment, instead of repatriating the income to Australian dollars, when the currency movement has been against one’s position.
- Carefully monitor currency movements, as well as the share-price.
At this stage I have only two investments:
- Linc Energy – Code T16.SGX
- Royal Mail Group – Code RMG.LSE
I would appreciate feedback from any reader with experience and opinion on the merits and risks of direct investing in International Shares.