The Case for Investing in Stock Markets Beyond New Zealand

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There is no doubt that the New Zealand market is a great place to invest your capital.

A history of strong returns, coupled with minimal barriers to entry, provides an environment in which investors can find profit in many industries.

With stable uptrends and growth outstripping many global markets, one might ask, “What’s the point of investing overseas if I seem to have it all here?” “

The truth is that by investing internationally, you can open yourself up to a whole new world of opportunity and potential. You can access sectors and industries that are not available in a small economy like New Zealand.

Take a moment to think about what New Zealand is up to Less than 1% of the world market!

It’s also hard to ignore the fact that the US S&P 500 has performed somewhat higher over the past 10 years compared to the NZX 50. Very intriguing…

Source: ANZ

Source: S&P

Why investing in the New Zealand market is a good idea

Investing in the New Zealand market provides benefits that go beyond personal financial gain. Yes of course you can make money by investing in New Zealand stocks, but you are also investing in the future of the country.

As great as it already is, I for one would like to see a future New Zealand with greater infrastructure, more competitive wages and reduced poverty among the population.

I’m not saying that investing in New Zealand businesses is a magic cure that will solve all of our problems, but it could help support economic growth here by pumping more money into local businesses, especially when they do. to capital raising.

Other advantages of the domestic market include its ease of entry, the absence of currency risk and a diverse range of local investment vehicles – stocks, ETFs, bonds, real estate.

Why investing globally is a better idea

There are a few drawbacks to consider if you don’t want to include foreign assets in your portfolio.

  • First, you wouldn’t be geographically diverse. By having all of your eggs in the New Zealand basket, your portfolio could be exposed to greater losses if the national economy were to deteriorate. By holding a geographically diversified portfolio, the potential for severe losses may decrease.
  • Second, New Zealand is a relatively small country with an equally small economy. There just aren’t as many companies to invest in compared to a larger economy like the United States. To put that in perspective, there are 186 companies listed on the NZX main board, while around 6,000 companies trade on the NYSE and Nasdaq daily. .
  • Finally, there are countless industries around the world to invest in, many of which are full of opportunities. While New Zealand certainly has strong ties in the agricultural and primary industries, we are lacking in many other areas.

This provides the incentive that many potential investors need as they wish to seek returns in their preferred industries. Especially in industries and sectors where they can see a rise or growth.

ANZ Bank has compiled an interesting graph detailing examples of domestic industry exposure and compares it to some of the trending global industries that are not available in New Zealand markets.

Source: ANZ

Opening up to these industries could offer a much more diverse range of investment and exposure opportunities.

After assessing your risk profile and financial goals, you could own a part of any business that catches your eye. The one that you think could grow more and / or generate good income in the form of dividends.

Whether investing in individual market players like Amazon [NASDAQ:AMZN] and You’re here [NASDAQ:TSLA], or invest in entire sectors with the countless ETFs available, there really is something for everyone.

For example, you could expose yourself to biotechnology, medicinal cannabis, or technology in the near future / early stage with selected ETFs looking to include leading companies in each industry.

How to invest locally and globally

The good news is that you are not limited to investing only in the New Zealand market.

You can get the best of both worlds by creating a portfolio that includes stocks from New Zealand and international markets.

In doing so, you could increase the scope of your possibilities and benefit from geographic diversification.

Source: NZ Super Fund

There is a good chance that you have already invested in foreign assets without even knowing it!

Many KiwiSaver funds, especially growth funds, already invest your contributions in foreign assets.

The NZ Super Fund also relies heavily on foreign stocks to achieve the strong growth it has managed to achieve so far.

The purpose of this fund is to help finance the pensions of New Zealand retirees. A whopping 75% of the fund is invested overseas. This shows the importance that professional investors place on foreign investment.

In order to invest in foreign stocks, you can place an order on your investment platform or consult your authorized financial broker. It’s relatively easy to invest globally with the right tools.

Our Vistafolio wealth management service, for example, actively manages and researches overseas investment opportunities as they arise in the market for our eligible investor and wholesale clients.

Conclusion

We have discussed the advantages and potential limitations of investing in the domestic market.

We also understand the benefits that investing abroad can have on your portfolio, such as geographic diversification and a greater range of investment options.

Before adding foreign investments to your portfolio, you should be aware of the research requirements, higher transaction costs, currency volatility, and management fees that are present with this scope of investing.

Remember to always research the market you are interested in before committing capital. This practice will help you understand the quirks and potential processes that differ from the domestic market.

Greetings,

Samael Knaap
Analyst, Morning of wealth

(This article is general in nature and should not be construed as financial or investment advice. For advice for your specific situation, please seek independent financial advice.)

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