Participating in foreign stock markets is similar to participating in a domestic stock market, though more research is typically required before the investor puts any money in the foreign market. Before venturing into a foreign stock market, an investor should look into the country's government and society to see if both are stable and can foster good growth. Along with studying up on the country or region, the investor also should check on other countries and regions that have strong ties to the foreign market, because instability in those areas may cause instability in the market. Just like with domestic investing, an investor should concentrate on diversity in the foreign stock markets to keep from losing money. Some countries and regions have laws that restrict an outside investor’s activity, so the investor should know the laws or talk with a broker familiar with the country or region.
Government and society are two factors that can powerfully affect foreign stock markets. For example, if the country or region has few internal struggles and is relatively stable, then the investor can expect stable returns on investments. If the country or region is in the middle of a rebellion or there are constant terrorist attacks, then this tends to make the country or region unstable, which usually leads to lower or unpredictable investment returns.
Aside from the target foreign stock markets, an investor also should research any countries or regions that are directly connected to the target foreign market. If a connected area is having a war, then it may pull the target area into the conflict, which can cause either an economic boom or a collapse. This factor is usually not as important as checking the target area itself, but it still can have powerful market effects that an investor should be aware of going in.
Diversity is important, regardless of where an investment is made. Failing to diversify investments means that the slump or crash of a particular area of the market could cost the investor everything. With foreign stock markets, the investor can diversify in one of two ways: investing in a variety of stocks within a single market or investing in markets in different countries or regions.
Most countries give an outside investor unrestricted access to their stock markets, but some have laws that may affect how many stocks the investor can hold. This means an investor should check for laws concerning outside investments or consult a broker in the target area. While a broker costs more, it can be worth the expense, because the broker should have extensive knowledge in this area and can keep the investor from accidentally breaking any laws.
