Investing outside Australia
It's now easier than ever for Australians to access
international investments. Investing overseas can provide
investment opportunities not available in Australia and help
diversify your portfolio, however there are additional risks you
There are many ways you can gain exposure to overseas assets or
markets including through managed funds, exchange traded funds,
Australian companies with international operations or a direct
Here we explain some of the ways you can invest overseas, the
benefits and risks and how to decide if international investments
are right for you.
Why investors look overseas
The Australian share market has total market capitalisation of
$1.9 trillion (as at January 2018), which represents around 1.7% of
the world's total share market value.
Australia's major stock exchange, the Australian Securities
Exchange (ASX), is the sixteenth largest in the world by market
capitalisation, but is relatively small when compared with other
Figure 1 shows the top 20 international exchanges by market
capitalisation at closing on 31 January 2018.
Figure 1: Ranking of international exchanges as at 31 January
Federation of Exchanges, January 2018, in AUD.
Investing outside Australia can provide the benefits of:
- Added diversification - Spreading your
investments over different countries and markets can help diversify
your portfolio. This will mean a slowdown in one country will have
a smaller impact on your overall portfolio.
- Higher growth - International investing lets
you take advantage of potential for growth in foreign countries,
especially in emerging markets. It's important to remember that
while some countries may have higher growth and potential returns,
they can have a higher level of risk.
- More options - You can invest in companies,
industries and asset that are not available or are difficult to
invest in domestically.
Before you invest overseas it's important to consider how the
investment fits with your investment goals, risk tolerance,
investment timeframe and overall portfolio.
How to invest overseas
If you are looking to invest overseas you should first think
about which assets or asset classes best suit your investment
goals, investment timeframe and risk tolerance.
The major asset classes are:
Once you have decided which assets or asset classes you will
invest in you should consider which country or region you would
like exposure to. Researching the country or region, its trends and
political and economic environment is essential before you invest
your money. See researching about international investmentsfor
where to look for help and information.
Once you have decided the assets and region to invest, think
about whether a direct or indirect investment is best for your
Direct investing is where you purchase the asset yourself and
hold it in your name, for example purchasing international shares through your
broker or purchasing an overseas investment property.
If you are considering a direct investment it's important to
- all the costs and fees involved
- the foreign investment laws of the country you are looking
- how it will be taxed
- how quickly you will be able sell if you need the money.
This is where your money is given to another party who buys and
sells investments on your behalf. Some of the main ways Australians
can gain exposure to international investments indirectly
In a managed fund your money is pooled with that of other
investors. An investment manager then buys and sells shares or
other assets on your behalf. Some managed funds focus on specific
regions such as Asia or Europe, while others focus on specific
asset classes in certain regions. Managed funds can be an effective
way to gain diversified exposure abroad. For more information see
Exchange traded funds (ETFs)
These are a type of passively managed fund that can be bought
and sold on the share market. ETFs aim to track the performance of
a certain market, index or a specific asset class such as
international shares or global property. ETFs often have low fees
and can provide low cost exposure to international investments. For
more information see exchange traded funds.
Australian companies with overseas
Another way to gain international exposure in your portfolio is
to invest in listed Australian companies with international
operations. Many companies listed on the Australian Securities
Exchange (ASX) have international operations and investments.
If you are considering an international investment or want to
gain exposure to overseas markets, make sure you compare the direct
and indirect investment options available. Think about the time it
will take to manage the investment, the cost, level of expertise
required and level of risk when deciding if a direct or indirect
investment is best for you.
Risks of international
Investing internationally carries all the general risks of the
underlying investments, but there are also other risks that are
unique to overseas investments that you need to assess. These risks
- Currency risk - Foreign investments are
usually held in the currency of the country of origin. Income and
capital gains or losses must be converted into Australian dollars
(AUD) which means you are exposed to the risk of movements in
exchange rates. If the value of the AUD rises against a particular
currency, the value of investments held in that currency will fall.
Conversely a fall in the AUD will increase the value of your
- Political, economic and regulatory risk -
International investments are subject to country-specific risks
such as political, economic and regulatory changes. While it might
be easy to keep up with these changes in Australia it may be harder
to keep track of what's happening in other markets. You will also
need to understand the laws and regulations relating to foreign
investments in the country you are investing in.
- Selling time - If you hold investments in
other countries or in managed funds that invest internationally, it
may take significantly longer to sell these assets. Some countries
may also restrict the amount or type of securities that foreign
investors may purchase. Where these restrictions exist, they can
make it significantly more difficult to buy and sell assets in
- Additional costs - International investing can
be more expensive than investing in Australia. In some countries
there may be unexpected taxes, such as withholding taxes on
dividends or rental income and transaction costs such as broker's
commissions. Managed funds that invest overseas may have higher
fees and expenses than funds that invest in Australia.
- Information - It can be difficult to find
up-to-date information on foreign companies and assets. Some
foreign companies may not provide investors with the same type of
information as Australian companies do or they may have different
legal and accounting standards.
- Legal remedies - If there are problems with
your overseas investments you may have to rely on the legal
remedies that are available in the country where you invest.
If you are concerned about any of these risks you should seek
professional financial advice before you invest
How to research
Before you invest it's important you research the country and
market you are investing in, the political and regulatory
environment and the foreign investment laws.
Some good sources of information that can help with this
- Financial adviser and broker reports - Some
advisers and brokers provide research reports on particular foreign
companies, individual countries or geographic regions. This can
help keep you up to date with rapidly changing market
- Foreign company reports - If you are investing
in a listed foreign company, they are generally required to provide
financial reports, such as half-yearly and annual reports. Look at
the company's website or ask your broker for a copy of the
- Foreign regulators - The securities regulator
in the country you are investing in may be able to tell you
information about a particular foreign public company or market,
foreign investment laws and warnings about scams to look out for.
You can find a list of the international securities regulators on
Organization of Securities Commission's website.
- International bodies - international bodies
including the International Monetary
Fund, the World Bank and the Bank of International
Settlements have a large amount of data and research about
different countries. These can help give you insights about how
those markets are performing and global trends that could impact
your international investments.
Tax on foreign income
If you are considering international investments, it's important
to know how foreign income is taxed and how this will impact your
If you are an Australian resident for tax purposes, you must
declare income from overseas investments in your tax return. This
includes income from offshore bank accounts, income from
international shares, rental income from overseas properties and
capital gains on overseas assets. If you have already paid foreign
tax on your international investments, you may be entitled to an
Australian foreign income tax offset.
See the ATO's webpage on foreign income for more information on the
tax treatment of international investments.
Australian investors can invest in overseas
assets in many ways and international investments can be an
effective way to diversify your portfolio. However overseas
investments can also involve greater risks than in Australia. If
you are unsure whether investing overseas is right for you, seek
professional financial advice.
Last updated: 24 Oct 2018