Foreign Investment Part Two

14 December 2015


Foreign Investment – Part Two

The world really is your Investment Oyster…

In the first blog entry in this series we looked at the potential benefits of investing overseas in various classes of assets. In this entry we look at some of the other factors you should consider before making such an investment.

What are the risks involved in making international investments?

Whichever way you look at it investing overseas carries the same general underlying risks associated with making an investment in the domestic market of Trinidad and Tobago (these are the risks specific to the asset that you are making an investment in).
Over and above this there are other risks that you need to take into account when considering making an overseas investment that are not generally applicable when you make an investment in your own domestic market. Although the following should not be considered to be an exhaustive list, you would certainly have to consider some (and perhaps in many cases all) of the following:

  • The political, economic, and regulatory risk associated with the investment – all international investments are subject to risks that are specific to the country that investment is located in. As an overseas investor, you need to carefully monitor those risks on a continuous basis. You need to consider whether you have the time and expertise to do this.
  • The currency risk associated with the investment – If you make an investment in (as an example) a Brazilian company then you will have to invest in that company using Brazilian Reals. When the company pays a return – either in the form of a dividend or perhaps interest – they will pay that return in Brazilian Reals, which you will then need to convert into Trinidad and Tobago dollars. This means that in our particular example you are exposed to the risk of movements in the exchange rate between the Brazilian Real and the Trinidad and Tobago dollar.
  • Problems involved with the selling of the asset – if you hold an overseas investment, it can take longer to sell that investment if you need to “cash out” in a hurry. This is because some countries restrict the amount or type of securities that an overseas investor can purchase and sell. If such restrictions exist in your market, then they can make it significantly harder to buy and sell overseas assets.
  • Additional or “hidden costs” – as a general rule of thumb investing overseas can be more expensive than investing in the domestic market. Each country is different – and this point alone highlights the importance of doing research upfront – but many impose withholding taxes on the payment of dividends and interest to overseas investors. The best advice we can give here is always consider the tax implications of your investment (covered briefly below).
  • Sourcing accurate and up-to date information on potential investments – with the rapid extension of internet availability and the existence of services such as Google Finance and Bloomberg this is perhaps less of an issue than it was five years ago. Most companies now provide investor relations sections on their individual websites and most overseas stock exchanges contain detailed information that can be used by the investor for research purposes. Usually this information is prepared in a timely fashion.
  • Access to legal remedies in the event that an investment goes bad – in the event that your overseas investment goes “bad” and you have to resort to legal remedies, you are left with the unenviable prospect of seeking a remedy through a foreign court. Seeking such a remedy is often a timely and costly process with no guarantee of success.

 

 

'Could you bring in that list of risk factors you downloaded yesterday?'

 

 

 

 

 

 

 

 

 

 

 

These additional risks alone make it important for you to consider your options when making an overseas investment. If in doubt the best option is always to seek professional advice before making any decision that places at least a part of your capital at risk.

How do you conduct research on a potential international investment?

Before making any investment (local or foreign) it always wise to conduct some research before-hand. As discussed above your research should be focused on the country that you intend to invest in, the political and supervisory environment applicable in that country, and any laws applicable to non-nationals making investments from overseas in that country.
There are many sources that you can use to perform this research depending at least in part on your sophistication as an investor but again the best option is often to seek professional advice.

  • Financial advisor and broker reports – if you are considering making an investment through an overseas broker, then consider looking at any research material that they may provide on their websites. Many advisors and stock brokers provide a wealth of research material and reading it will certainly assist you in keeping up to date. Don’t forget that we at Firstline maintain a blog, and it is possible to surf historical entries covering all types of topics of interest to the person considering an overseas investment.
  • Foreign company reports – if you are considering investing in a listed overseas company, listed companies are as a general rule of thumb often required to maintain reports and make these available to investors. If you need help translating these reports into English, then consider seeking help at the local embassy for the country that you have invested in as a first step.
  • Foreign stock exchanges and other regulators – often the stock exchange and regulator existing in the country that you want to make an investment in provides information on potential investments, and this is usually free to use for the potential overseas investor.
  • International bodies – international bodies such as the IMF and World Bank produce regular reports on the economies of different countries. These can be used for research into the general macro-economic conditions applicable in a target investments country.
  • Google Finance and the web in general – the web is often a great source for researching investments but care should always be taken to corroborate information from more than one reliable source, and as always be careful of anyone who is trying to or appears to be trying to “sell you something”.
  • And for the super sophisticated investor – Bloomberg is perhaps the best resource for researching information available on the planet. If your portfolio is large and your pockets deep, consider acquiring one.

What are the tax impacts of making international investments?

When making an overseas investment always take appropriate advice from your tax advisor. However, as a general rule consider that individuals who are resident in Trinidad and Tobago are subject to income tax on their worldwide income, irrespective of whether that income is repatriated to Trinidad and Tobago. Also consider that some overseas territories impose withholding taxes on the payment of dividends and interest to non-resident individuals and corporations.

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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