Investing internationally has many benefits, however there are risks you should be aware of before making your first overseas investment. Let's take a deep dive.
Key takeaways
Investing globally comes with opportunities as well as risks, so you will need to decide whether international investments align with your personal goals.
Risks can differ by country. That’s why it’s a good idea to do plenty of in-depth research before diving into a new market.
You can manage your global investments with CMC Invest. Our user-friendly platform has plenty of tools and resources for international investors. Plus, you can buy international stocks using your $AUD balance.
Economic and political instability
Investments are often closely linked to their country of origin, meaning their value can be influenced by political, economic, and regulatory changes within that nation. For instance, if a company you invested in is affected by a war in a neighbouring country, this could have negative effects on your investment.
Many companies also operate in multiple markets and can face risks to their supply chain. It's important to assess investments for each company individually, conduct thorough due diligence and research before making decisions.
Access to or accuracy of information
As an international investor, there may be times when you might struggle to get access to reliable information. This may be due to anything from language barriers, complex disclosure standards, as well as vastly different practices around how information is reported.
Even something as simple as accessing financial statements or reading about a company’s corporate governance, may be more difficult in a foreign market. Because of this, you may want to consider the accuracy of information when making decisions on your international investments.
Currency fluctuations
The foreign exchange (forex) market is a global marketplace where you can trade currencies. It handles trillions of dollars in transactions daily. The main currencies used include the US dollar (USD), euro (EUR), Japanese yen (JPY), British pound (GBP), and Australian dollar (AUD).
Changes in currency values, like when the Aussie dollar falls against the USD, impact businesses. A weaker Aussie dollar makes our exports cheaper for other countries but raises costs for imports, affecting business performance and stock prices.