Researching Investment Opportunities Across Geographic Boundaries

In today’s day of globalization, many individuals are searching for investment opportunities overseas in foreign markets. There are several advantages to this as well as several complexities that today’s global-minded investors must take into consideration before choosing this investment strategy. The article below will cover some of the ways you can profit from these foreign opportunities as well as some of the things you should watch for when scrutinizing these markets.

Inter-Relatedness

The first thing investors should take into consideration when choosing to invest across geographical boundaries is the connectedness of the global economy. Investors need to stop thinking of foreign markets as completely separate entities with completely separate driving forces. Instead, investors should recognize that the economy is truly global and events in one marketplace will certainly produce some effects elsewhere. Take for example the U.S. and China. While the Shanghai market may be a good place to diversify your assets, you must take into consideration the fact that, for a large part, these two economies depend on each other. The U.S. depends on China to buy government-issued treasury bills as well as providing low-cost production to feed American demand.  On the flip side, China depends on the Americas to buy its goods and to export hard assets (such as metals for industrial growth). This being said, global investor should search to exploit arbitrage opportunities between the foreign economies. There are many investment opportunities in the form of being able to predict the direction of one foreign market based on the performance of a related market elsewhere in the world. By studying the dynamics of supply and demand between two markets, investors can make a profit by speculating on the direction of the market in relation to an increase or decrease in supply relative to demand.

Currency Issues

The main problem global investors must face is currency volatility. This is to say that if an American invests in a Canadian company and earns a 20% profit, this profit is subject to the variance in the currency spreads. For example, if, during the time the 20% profit was incurred, the American dollar also rose 10% against the Canadian dollar, the American investor’s profit has been reduced to only 10% once he cashes out to profit from the transaction. However, this can also present an opportunity for the investor. Individuals should invest in markets where they think the domestic currency is under-valued. In this manner, they could profit on two fronts: the currency exchange as well as the capital gains.

BRIC

In 2001, the term BRIC was coined. This is an acronym that represents some of the best investment opportunities for individuals looking to cross geographical borders. It stands for: Brazil, Russia, India, and China. Essentially, it defines the best locations for economic growth and any investor looking for healthy up-and-coming markets should analyze these. A good place to start would be to invest in an exchange traded fund (ETF) that tracks the performance of a market in one of these locations.

To conclude, there are many ways to profit from foreign marketplaces. If an investor wishes to broaden their net, they can find many investment opportunities hidden abroad that they would not have been able to participate in otherwise.

 

 

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