Investing in overseas shares
International shares give you access to larger markets outside
Australia and diversify your investment portfolio. However, there
are risks you should be aware of before you add international
shares to your portfolio.
Here we explain how to invest in international shares and how to
decide if they are right for you.
Comparing the Australian
share market to the world's markets
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
World Federation of Exchanges, January 2018.
The Australian share market is heavily weighted toward the
financial and mining sectors, which account for about 60% of the
ASX200 index. The ASX200 index tracks the performance of the top
200 companies, by market capitalisation, listed on the ASX.
Investing in international shares can expose Australian
investors to large companies in sectors that may not be well
represented in the Australian market. International markets may
also perform differently from the Australian market over the same
period, which means there may be times when overseas markets will
give you higher returns than the Australian market (and vice
Figure 2 shows the comparative performance of the major
Australian, US and global indices for the 10 years to 21 February,
2018. The S&P500 index returned 103% over the period, the MSCI
World index grew by 45% and the ASX200 by 6%.
Figure 2: Comparative performance for major Australian,
US and All-World share market indices (29 February 2008 - 21
Benefits and risks of
Benefits of international shares
Here are some of the benefits of investing in international
- More options - Investors are able to invest in
companies, industries and asset classes that are not represented,
or are underrepresented, in the Australian share market.
- Diversification - International shares can
provide investors with geographic as well as asset class
diversification. This means a slowdown in one market will have less
of an impact on your portfolio.
Risks of international shares
Investing in international shares carries many of the same risks
as investing in Australian shares but there are also some risks
that are unique to global investments. These include:
- Currency risk - Foreign shares are 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 additional volatility from 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. Also, a
fall in the AUD will increase the value of your investments.
- Political and regulatory risk - International
shares are subject to country-specific risks, such as political 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 need to understand the market
and laws relating to foreign investment in the country you are
investing in. You will also want to find reliable information
sources to help you keep track of your investments.
- Time differences - Other markets operate in
different time zones, so trades and information may be
- Tax - For taxation purposes, investment income
from international investments is treated differently from income
from domestic investments. If you hold international shares and
receive income, professional tax advice is recommended.
If you are concerned about any of these risks you should seek
professional financial advice before investing in
How to invest in international
Typically Australians invest in international shares in one of
three ways: using a broker, through a managed fund or through an
exchange traded fund (ETF).
Most brokerage firms or online broking
services can buy and sell shares listed
on major international exchanges such as the New York Stock
Exchange, NASDAQ, London Stock Exchange and Euronext. For smaller
markets or exchanges, check whether your broker can trade on
Look for a broker who provides the services you're looking for
at an affordable price. Services and fees can vary a lot depending
on who you choose.
Direct investing in individual international shares is
significantly more expensive than investing in Australian shares.
Make sure you look at all the fees including brokerage fees,
currency conversion fees, foreign security custody fees and
internal transfer fees.
Exchange traded funds (ETFs)
These are investment funds, similar to managed funds, that can
be bought and sold on a stock exchange. Most ETFs are passive funds
that track the returns of a specific index or market sector. They
can be bought and sold like ordinary shares through your stock
broker or online trading account.
There are a range of ETFs available that track various indices
such as the ASX200 and the S&P500. Some may track
sector-specific indices such as the global healthcare index or the
Australian resources index.
ETFs can be a cost-effective way to gain exposure to
international shares, but it's important that you read the
product disclosure statement (PDS) to know what you're
investing in and the risks involved.
Find out more about exchange traded
funds and their risks.
Managed funds pool your money with money from other investors
and an investment manager manages it
on your behalf.
Some funds focus on international shares, perhaps specific
regions or industry sectors, while others simply include
international shares as part of a diverse mix of assets.
Fund managers may have strategies in place to limit the impact
of exchange rate movements on your investment. As with
any managed fund, read the PDS before you invest, and
only choose investments that are compatible with your
investment goals and risk
Diversification is an essential part of managing investment
risk. Ideally you want to diversify both within and across asset
Geographic diversification can lower overall investment risk.
Economies grow at different rates and at different times, so a
portfolio that is diversified geographically benefits from changes
in faster growing economies and offers some protection from slowing
Find out more about diversification.
International shares can be an effective way to
diversify your portfolio. However, the risks can be different from
when you invest in Australian shares. Weigh up the pros and cons
and seek professional financial advice if you are
unsure whether international shares are right for you.
Last updated: 03 Apr 2018