How to Invest in Overseas Stock Markets Easily

Do you want to invests overseas, but is not sure how?

Do you want to invest into the largest stock market in the world (NYSE) but have no idea how?

Do you want to invest in high flying technological stocks such as Apple and Microsoft but wonder how to do it?

Do you want to invest into the second largest wealth generator in the world, that is China/HK stock market?

Do you want to invest in just about any large and reputable company, in almost the entire world?

Now you can!

This article is the continuation of  How to Invest or Trade in US Stock Market for non-US Citizen?. This article focusing on investing via local (Malaysian) stock broker while the previous article more on US based Stock Broker.

There are many options as to what brokers you may use, however, having a US broker or online broker may somewhat be a daunting tasks, especially in depositing money to an unknown entity in far away places.  And when you may want to withdraw your “winnings” it would be a big hassle as well since the bank or broker is located overseas.

Then why don’t you use a local broker, which you are already very accustomed to? A local broker which you can visit and actually see their buildings? To those who want a reputable broker with ease of access with an on-call (24 hrs basis) assistance or by making visits when help is needed, there’s CIMB i*Trade.

All you will need to do is go to the nearest “select” CIMB Bank to open your trading account.  In fact if you are too lazy to go there, give them a call and they will send someone to attend to your account opening, right in your home or office.

Any season investor would know that the best strategy of a great investor is to diversify into new markets and new companies that can represent significant growth opportunities.  Giving new companies with much needed capital would accelerate economic growth, and the investor would be rewarded by the new wealth created.  This article is to inform Malaysian investors of this recently available (and expanded) fine option for investing overseas, using a CIMB i*Trade account.  Be sure to mention that you want to trade in overseas market and they will provide you with the additional forms to fill up and do ask all your burning questions to the representative to get them answered.

CIMB has gone into great length to provide Malaysians a one stop investing solution.  You can perform your trade yourself, online, in real time.  The platform is quite easy to use.  Upon a trade, they will send the contract via email to you, and they may also send you a snail mail for your monthly statement.  Understanding your monthly statement can be a daunting task due to the complexity of multiple transfers, markets and currencies involved, however once you get the hang of it, you will be just fine.  i*Trade is still relatively “young” and have plenty of room to grow with eager to help staffs, so all of these are a big plus for investors looking for new markets.  Buying and selling is very easy in CIMB i*Trade, similar to existing online platforms used by most brokerage banks.

Capitalization of Bursa Malaysia is ‘only’ 1.4 trillion ringgit, but do you know the capitalization of the NYSE? The Nasdaq? Does tens of trillions of ringgit startle you? By broadening your market reach, you can choose from tons of great companies such as IBM, Amex, Visa, McDonald’s, GE and many others.  A company such as Procter & Gamble, has never failed to pay dividend, for more than a hundred year including during the Great Depression! Who wouldn’t buy a proven company with great history and pride?

Check out an article on the Dow Jones Component HERE (http://259trillionvs5trillion.wordpress.com/monthly-publication/may-2013/)

CIMB i*Trade allows you to invest directly into the following markets:

1. Bursa Malaysia (1.3 trillion ringgit)
2. SGX of Singapore (3 trillion ringgit)
3. Hong Kong’s Hang Seng (9.6 trillion ringgit)
4. NYSE (The Dow index etc.) (56 trillion ringgit)
5. Tech heavy Nasdaq (10 trillion ringgit)

The fun part to know is that from these few markets, you can actually access the entire world’s public companies! This is because the NYSE and the Nasdaq, as well as HK’s Hang Seng are some of the largest stock markets in the world.  Many foreign international companies are essentially listed and traded in these stock exchanges and most of them are accessible for over the counter trade.  One single market access to the NYSE, would open doors to many countries such as South Korea (Samsung anyone?), Japan (Sony anyone?), Indonesian companies, and in fact, even listed Malaysian companies in Bursa can be bought right from here (such as Sime Darby).

Investing into NYSE and the Nasdaq would open doors to markets all over the world.

(Maps courtesy of Google Maps)

 

For a hundred year, the US stock market has been trading other foreign companies even if these companies aren’t listed in the NYSE.  The American Depositary Receipt was created in order to facilitate investments in foreign companies.  These companies voluntarily list their stocks into the NYSE for example, and since every stocks listed in the US must follow SEC regulations (the regulator), these companies would do so too.  Therefore, investors are quite protected.  Several hundred foreign companies are listed in this ADR program.

The NYSE is also the place for the Dow Jones Index, a very popular index where many people benchmark their own performance to.  The Dow30 component companies such as McDonald’s, Intel, GE, Boeing etc. can easily be bought from CIMB i*Trade.  Do you know that these American companies have very large presence globally, that sometimes their revenue is derived mostly from overseas and not from America? One such company is Intel, despite being an American company, 85% of its revenue is derived outside of the United States.  Therefore buying these large global companies can provide you with significant reach and leverage to many markets at the same time.  They also provide stability and diversification, which an investor would always love.  Owning a share in General Electric is like owning a share in a multitude of different corporations, in different countries and markets, all at the same time.  This is the ultimate diversification a long term investor requires.

There is also a multitude of ETF which an investor can purchase.  A fund that concentrates on SEA countries, China, Africa and just about in any sector and in any “theme” are all available for purchase.  Do you want to own shares in a multitude of solar companies? Try the ETF for renewable and solar, most were already up by 400% in the past year alone!

Brief Description on How CIMB i*Trade Works

In your trading account, you will deposit money (in Malaysian Ringgit).  Say you deposits 30,000 ringgit.  This money will be deposited into a Malaysian Trust Account which means CIMB Investment Bank is the executor of the trust account that you own.

Then you buy the shares of the company you have researched well and would love to own such as Google or maybe Facebook.  Say that you spend 20,000 ringgit in buying the shares of that company.  The purchase is performed live, during trading or off trading session.  You will normally have 3 to 5 working days before your purchased is deducted from your trust account.

To pay for the stock purchase, your Malaysian Ringgit in the Malaysian Trust Account would be automatically converted into US Dollars.  Now you will have RM10,000 left, plus a bunch of shares of Google or whatever companies in your account valued at 6,060 dollars.

Say a month from now, you decide to sell the shares off, after it went up in value by 10%.  Now you will sell it, all of it; so you will receive USD6,666 (trading costs excluded for ease of calculations).  At the same time you are eyeing to buy the shares of Coca-Cola, which is partly owned by Warren Buffett, the legendary investor, which you think is pretty undervalued in the market right now.  Will CIMB i*Trade convert your just received US Dollars back into Malaysian Ringgit resulting in conversion loss (of several percent?)

And when you finally buy that Coke’s shares, would CIMB i*Trade be ‘dumb’ enough to reconvert your ringgit back into Dollars once more? Luckily, CIMB i*Trade is smart enough, to know that you may want to purchase the shares of other companies, so the conversion is not automatic.  In fact they will automatically create a foreign currency trust account for you, right inside your trading account, all in US Dollars.  So upon selling your Google shares etc. your money will be kept in US Dollars.  Conversion will be done only upon your instructions.  This way, you may trade repeatedly by buying and selling shares denominated in US Dollars, without ever incurring any conversion loss.

Next, say that you decide to buy the shares of HSBC, which is listed in Hong Kong’s Hang Seng.  You may spend RM6,000 buying the shares.  And should you sell these shares in the future, a trust account in HKD will be automatically created for you.  There is no other nicer way to have a multitude of currencies, all in a single account, while being able to buy and sell shares!

A snapshot of your trading account and trust account would look like this if you sell off all of your shares, but did not convert the currencies back into Ringgit.

Of course you can convert these foreign currencies back into Ringgit, especially if you also want to become an FX trader! Not just you can gain on the jump in a share’s price in New York, you can also doubly profit from the drop in the value of the Ringgit (or the increase in value of the Dollar).  If your share has gone up by 10%, and the Malaysian Ringgit has dropped by 10% from 3 to 3.3 to the Dollar, now you will double your gain! What a winner!

Your overseas investment in foreign currencies is a great insurance against any downward forex movement of the Ringgit.  If the Ringgit goes down by 10%, you are not impacted since your shares are all in USD for example.  And if you sell the shares and convert your cash back into Ringgit, you would have gained an additional 10% on the money.  What if the US Dollar goes down vis-à-vis the Ringgit? Again, you are not impacted because your shares are still kept in US Dollars and the share price would self adjust to account for any inflationary impact of the decline in the value of the US Dollar.  If Malaysia’s economy does very well and the Ringgit appreciates significantly, congratulations to you because without doing anything else, you would automatically be richer by the equivalent percentage of the rise of the Ringgit.  Aren’t we all already keeping most of our assets denominated in Ringgit? Assets such as your EPF, your houses, cars etc. are all denominated in Ringgit (which just rose in value).

The decision is up to you to convert, CIMB i*Trade will let you decide.  For investors like you, there is no need to open any foreign currency account which usually pay very low interest rates and which you cannot use for buying shares.  CIMB i*Trade would be the perfect answer for investors like you.

To those who are afraid that the Malaysian Ringgit could depreciate (and the Dollar goes up), can transfer as much as they could, and then buy as much shares as they could, and later sell them all back, and keep your proceeds safe and sound inside the US Dollar, or the currency you would prefer.  Or better yet, just let the money be invested in the US companies and reap the regular dividends.  From diversification stand point, aren’t you already overexposed to Malaysian markets by having everything or most of what you have, in the Malaysian Ringgit, inside the Malaysian economy? Why not diversify and bring in more profit and own more companies worldwide? Isn’t all of your shares, EPF, cars, houses, land and all other kinds of assets are all in Malaysia? Are you over exposing yourself to one market alone?

For more article on stock purchased returns and risks do visit http://259trillionvs5trillion.wordpress.com/monthly-publication/february-2013/

Trading Costs

Just how much it will cost you to buy shares in the US?  The minimum charge is 25 dollars per trade, plus other misc charges.  Check them out with CIMBi*Trade for the latest and actual trading costs you would incur.  It is different for each of the stock exchanges.  Roughly speaking, your trading costs might range from 1% to 2% of your purchase depending on the volume.

Almost Free Currency Conversion

Yes, that is right.  You can claim a superior conversion rate obtainable only by a large investment bank such as CIMB.  Take a look at the sample of an executed trade below.

Note that the conversion rate obtained for that day was basically the same as the interbank rate, which is a great conversion rate! Ringgit was traded at around 3.29 to a Dollar on that day.  Therefore the conversion to US Dollar is so good, it even beats local foreign currency account conversion rates.

Should you decide to deposit and keep your money in Ringgit, CIMB i*Trade will pay generous interest on the deposited money equivalent to Fixed Deposit (this may change however).  For example, if you buy shares in Bursa Malaysia and then sold the shares and the proceeds are kept (in Ringgit), you will almost obtain an automatic FD rates on the proceeds.  This is a nice benefit of keeping you money in the account, all with minimum hassle to obtain the highest possible rate.  In short, this account is geared towards maximizing an investor’s returns.

Dividends

Many of the global companies pay good and steady dividends, in US Dollars or in their native currencies.  The proceeds will be kept inside your account in the same currency, i.e. Dollars or SGD or HKD.  NYSE allows you to buy as low as only one share in a company, lower than what Bursa typically allows.  But don’t do it, as your trading costs aren’t cheap and for each dividend paid, CIMB will charge a service fee of about USD10 per dividend payment.  Therefore it is advisable to buy a minimum of RM10,000 for long term holding with the  regular dividends deposited into your trust account as cash.  But if you just want to buy or sell, even RM5,000 worth of shares would do just fine.

Tax implication

If you are non American, chances are you will not be taxed for your buying and selling of shares (unlike an American could).  So it is even better for you.  This is the same as you would be buying shares right here in Bursa Malaysia.  Without capital gain tax, this would mean even more profit for you.  As for dividends, it is normally taxed at 15% to 30%, which is the same as Americans themselves.  Other than that, overseas income is not taxed in Malaysia and usually will not need to be declared to LHDN.

The advantage of using (Malaysia) broker

1. Don’t have to worry about the hassle of transferring money in between your bank account in Malaysia & Trading account overseas.
2. Have the convenience of managing all your stock investment in one account.

The advantage of US based broker

1. Much lower trading fee. As low as USD2.50 per trade compare to USD13 to USD25 per trade for Malaysia’s broker. You have to remember, you have to pay the trading fee per trade. If you buy similar stock 5 times in a day, you will be charged 5 times. In Bursa Malaysia, you only charged 1 time.
2. Some Malaysia Stock Broker may perform currency exchange each time transaction is made. You may loose on currency exchange. With US base Stock Broker, you do not have this problem.

How to open a CIMB i*Trade Trading Account

To open a CIMB i*Trade Trading Account, go to http://www.itradecimb.com.my/.  Then fill in the on-line form so that they can contact you and visit you if you would like to open one.  This is a great service from CIMB to grant worldwide access to Malaysian investors.

By the way, you may play with the demo at http://www.itradecimb.com.my/doc/Demo/QSEA_CIMB/Demo.html just for an experience.

You may contact their Customer Service Representatives at +603 2261 0888 or email them at [email protected]

Readers are advised to conduct their own research on the best route for investing in stocks. Author provides no warranty as to the accuracy and correctness of the advice provided in this article.  Readers are advised to check with the actual provider (i.e. CIMB Investment Bank) for further details.

This article was a collaboration effort in between 1-million-dollar-blog & Sharif Rahman, the co-author of 259 Trillion Vs 5 Trillion book series as well as several other books including one in the Malay language. He can be contacted at his email at [email protected].