Why Trade International Markets

Ever wondered why some investors trade international shares rather than sticking to their local share markets, like the ASX? There are many benefits – as well as potential drawbacks – that investing globally can deliver. The trick is finding out whether it’s the right avenue for you to pursue according to your risk tolerance and long-term investment objectives. 

In our previous module, we covered some of the basics of international share trading. While most investors decide to start their journey locally, as they may feel in more familiar territory within their own market, if and when you do decide to branch out, you could potentially strengthen your portfolio through exposure to new and diverse economies. 

With CMC Invest, it’s just so easy to manage both domestic and international shares on the one platform – but before you get started, let’s look into what you might want to consider. 

Access to global markets 

Venturing out into international investments brings with it a whole host of opportunities beyond the confines of the Australian market. As we’ve already talked about in previous modules, while the Australian market does boast a certain level of stability, it tends to concentrate on sectors like financial services and mining. By also looking into global investments, it could provide you with a chance to diversify your portfolio across multiple industries that aren’t as prominent here locally. 

 For example, maybe you’ve been eyeing off specific international giants like Google or Tesla, which aren’t available directly on the ASX. So going for international investments can sometimes broaden your scope, letting you tap into a wider pool of industries and companies – well beyond the limited 2% of global equities represented in the Australian market. 

ASX vs Nasdaq historical performance 

Over the past decade, if you compare the historical performance of the ASX and Nasdaq it reveals an interesting trend. The Nasdaq has consistently outperformed the ASX year-on-year. In fact, over the two decades to October 2023, research shows the Nasdaq 100 returned 13% per annum compared to just 6% p.a. for the S&P/ASX 200. While the ASX has shown relatively steady growth, the Nasdaq is dominated by technology companies and has therefore showcased more robust returns, regularly beating or even doubling the ASX’s performance. 

Disclaimer: Past performance is not an indicator of future performance 

Exactly why there is such a gap in terms of performance could be down to the nature of companies listed on each exchange. The Nasdaq, for example, is home to many of the world’s leading tech giants, which have obviously seen plenty of growth over the past few years. On the other hand, the ASX lacks the same concentration of high-growth tech stocks, which could be impacting its overall performance compared to the Nasdaq. 

Ultimately, looking into this historical data can be useful for investors who are trying to diversify their portfolios and benefit from the higher returns offered by global markets, particularly those weighing more towards the tech sector.