A quick guide to investing abroad
When you think of ways to manage your wealth, you’ve probably thought of investing in foreign companies, but dismissed it right away because it wasn’t clear to you how to go about it. Investing abroad can be a complicated task. Agent 11Onze Amadeu Vilaginés gives us an overview.
In a globalised world like the one we live in, it is normal that more and more people want to invest abroad. And the trend is on the rise. It may be that we see potential in a sector that is not very well established in our country, but which, on the other hand, is very important in Germany or the United States, which is why we are interested in it. Unfortunately, not everything is so easy: a process that could be simple, such as buying the shares of a company, in a market that is different from ours can be a challenge full of obstacles.
And why is it so complicated, especially for individual investors? For many reasons. The first reason that makes it difficult is the commissions. “The most normal thing is that our broker charges us higher commissions for investing abroad than in Catalonia,” the agent argues. In addition, and depending on the country in which we want to invest, we will have to take into account many other factors such as currency exchange rates, market volatility, legislation and legal security in each country, among others.
ADRs and GDRs, investment certificates
To solve all these difficulties, ADRs (American Depositary Receipts) are used, or their global version, the well-known GDRs (Global Depositary Receipts). But what are they? “Both are certificates issued by banks that represent the shares of a foreign company, but which at the same time are listed on our local stock exchange,” Vilaginés explains. In the case of ADRs, on the US stock exchange. And in the case of GDRs, on the stock exchanges of the rest of the world.
These certificates make life much easier for investors. “If American investors want to invest in a Chinese company, instead of making life difficult for themselves by investing directly on the Shanghai stock exchange, paying a lot of commissions and being exposed to currency exchange, they can simply buy a Chinese ADR on the New York Stock Exchange,” the agent explains. This would also mean that it would be traded in US dollars.
However, it is not all advantages. ADRs are still certificates issued by financial institutions and are therefore not exactly shares in the company to be invested in. “This means that some of them do not allow voting at shareholders’ meetings and there may also be liquidity problems compared to investing in local companies,” Vilaginés warns. It is therefore important to invest very carefully, and always with the advice of an expert. Want to know more about investing abroad? Just watch the video below.
If you liked this article, we recommend you read:
Business innovation4 min read
Some companies are already established. Others are just starting to grow.
How much money can I have abroad?4 min read
The Court of Justice of the European Union has overturned