Foreign Investment Part One

9 December 2015


Foreign Investment Part One

 

 The man who looks only inwards misses a whole world of opportunity…

 Is it time to look overseas?

On the 4th December 2015 the Central Bank of the Republic of Trinidad and Tobago issued a monetary policy announcement.

Apart from increasing the repo rate by a further 25 basis points to 43/4 % (the eighth consecutive increase in the rate) the Central Bank made a significant statement on the future prospects of the economy of Trinidad and Tobago. For the record this is what the Central Bank said:

“Trinidad and Tobago’s growth prospects remain subdued amid weak business and consumer confidence. Following a dismal first half of 2015, domestic economic activity was depressed in the third quarter of 2015. The MPC was of the opinion that similar weak economic conditions are so far prevailing into the fourth quarter of 2015. Given the performance in the first nine months of the year and the potentially dimmed prospects for the final quarter, the domestic economy is expected to register an overall decline in 2015.”

This begs the question: is it time to look overseas for investment opportunities for at least a part of your investment portfolio?

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Why you should consider looking overseas

Considering a strategy that Invests at least part of your investment capital externally to the Republic of Trinidad and Tobago can provide many benefits. Consider the following:

  • Access to higher growth prospects – investing internationally allows you to take advantage of potential growth opportunities available in overseas markets. This is especially true of investments made in the emerging markets. However, it should be noted that while some countries and overseas shares may have higher growth potential in respect of returns, often this comes at a higher level of risk.
  • Adding diversification to your portfolio – Spreading your investments over more than one country and across more than one market and investment type can help to diversify your portfolio making it more resilient to external shocks.
  • Access to more investment options and more sophisticated investments – because financial markets in Trinidad and Tobago are in relative terms unsophisticated in comparison to larger markets like the United States of America, the number of investment options available internationally is much greater. Therefore, an investment strategy that includes at least a portion of international investments allows you to invest in companies, industries, and assets in flavours and varieties that are simply not available in Trinidad.

A word of warning before we move on with this blog entry:  Before you invest overseas it is important to consider how each investment you make fits into your investment goals, your individual risk tolerance, your investment timeframe, and the pool of investment assets that you already own. In short – before you make an investment – make sure it is a good fit for you. If you need help we at Firstline can assist you.

There’s a whole wide world out there just waiting for you to invest

Apart from these factors alone, the simple truth of the matter is that there is a whole wide world of investment opportunity out there and Trinidad and Tobago is but a very small cog in the world economy. If you don’t believe us on that point take a look at the following chart derived from the most recent publication from the IMF detailing the world’s largest economies.

That’s a huge pie and it represents a lot of potential investment opportunity.

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What are the main type of international assets available for investment?

Before you take the decision to invest in an overseas investment you should carefully consider which type of asset classes (or combination of them) best suit your individual investment profile (as discussed briefly in the preceding paragraph).

The major asset classes that are available to you will vary from country to country but are likely to include:

  • Cash/Currency – yes people do hold cash for investment purposes because exchange rates can and do change (this is topical at the moment in Trinidad and Tobago, at least if you read between the lines).
  • Fixed income securities – often referred to as bonds, these come in a number of flavours including those issued by companies, as well as those issued by sovereign governments. Firstline has a number of potential investments you could consider under this category.
  • Shares – with the advent of online trading and the growth of the internet, it is now relatively easy to invest in foreign equities from the comfort of your own home.
  • Property – often bricks and mortar are one of the best long term investments to hold especially in the time of recession.
  • Commodities – this category would include gold and other precious or tradeable commodities.

Once you have made a decision as to which investment class (or classes) you wish to invest in, you then need to consider which country or region you are prepared to accept investment exposure from.

This is where research (and to a certain extent access to professional expertise if you are not an experienced investor can pay significant dividends and help avoid heartache down the line). Researching the country, its political and economic environment, and its trends is a sensible and wise first step before taking the decision to invest internationally. For many investors this is the point at which you may need to consider seeking some professional assistance.

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How to invest – direct investing

Direct investing is a simple process. You purchase the asset yourself and hold it in your own name. If you are considering making a direct investment in an overseas asset, then you should consider the following factors – and of course as we have repeated a number of times you should consider seeking professional advice.

  • Have you identified all the costs and fees involved with making the investment in the asset?
  • Do you understand the investment laws applicable in the country that you are considering making an investment in?
  • Are there any tax implications associated with the investment (we touch on these in the second part of this blog entry)?
  • If you need to exit the investment quickly is this possible, and will there be any penalties involved?

How to invest – Indirect investing

Indirect investing is also a simple process. It occurs when you give money to a third party who buys and sells investments on your behalf. Typically, this is done under an Assets Under Management (AUM) contract, something that we also have extensive experience of providing at Firstline to both institutional and private investors.

Types of Indirect Investing

Some of the types of indirect investments available to the overseas investor include investments in managed funds, and exchange traded funds (these are often referred to by the abbreviation ETF).

In a managed fund your money is pooled together with that of other investors (with whom you usually have no connection). Typically, an investment manager is in charge of those funds, and on behalf of the group of pooled investors, he buys and sells shares and other assets.

Many managed funds exist and some are quite specialist because they concentrate on investments in one particular geographic area or one industry sector.

Managed funds are often the most effective way to obtain a diversified investment in overseas assets.

ETF’s are a special type of passively managed fund. ETF’s usually track an index, a commodity, bonds, or a basket of assets like an index fund. Unlike mutual funds, an ETF’s trade like equities on a stock exchange. As a result, ETF’s experience price changes throughout the day as they are bought and sold by investors. ETF’s often have low fees and can as a result provide low cost exposure to international investments.

Closing thoughts – a time to chill and a time to invest?

Firstline Securities Limited offers comprehensive coverage of local and international markets with a bias for the energy sector. Firstline offers a number of unique opportunities to put surplus cash to work either as your asset manager or investment advisor. Please contact us for more details at info@nullfirstlinesecurities.com or at 868.628.1175, we can discuss your investment needs in detail and craft a portfolio that makes sense for you. We look forward to hearing from you.

 

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