Global Market And Its Benefits
How does the global market work?
The global market refers to the various stock exchanges around the world, where investors can buy and sell stocks and other securities just as they can with their local stock market. This includes major exchanges like the New York Stock Exchange (NYSE), NASDAQ, London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), Hong Kong Stock Exchange (HKSE), and countless more.
Investing in the global stock market allows investors to trade shares of companies from various countries and regions, providing opportunities for international investment and portfolio diversification. Individuals can invest in the global stock market through various means, such as direct investment in foreign companies listed on an international exchange or through investment in global mutual funds or exchange-traded funds (ETFs).
Is trading in international stock markets a good idea?
Depending on your investment plan, trading internationally does offer a number of benefits, including a wide range of investment choices, risk diversification, and many more. But it also comes with risks and challenges such as trade restrictions, currency volatility, instability in global politics, and regulatory complications. Despite this, the advantages of international investments tend to outweigh the possible risks. Let's explore the benefits below.
Exposure to global industry leaders from different industries/sectors
Investing globally gives investors the exposure to access leading companies and industry players from around the world. This allows you to invest in global industry leaders with a track record of strong, consistent growth, such as the famed FAANG companies (Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet)). In addition, this diversification helps reduce risk by spreading your investments across a wider demographic and industrial net. It also can provide a hedge against volatility in domestic markets and protect against localised economic downturns.
Portfolio risk management
You will also be able to manage risk by investing in assets with low or negative correlations to your domestic holdings. For instance, when one market or asset class experiences a downturn, investments in other countries or sectors may provide stability or even positive returns, helping investors to mitigate losses.
Currency diversification
By exposing investments to different currencies through global trading, you may diversify your assets outside your own currency. Currency diversification can lessen the risk of currency depreciation and act as a buffer against changes in exchange rates.
Capitalising on international economic cycles
Economic cycles in various nations and regions frequently diverge from one another. Investors can benefit from these fluctuations by investing globally and directing their funds to markets or regions that are experiencing rapid development while others may be experiencing stagnant growth.
What about trading in the US and Hong Kong? What are the benefits?
Two of the biggest stock exchanges in the world are undoubtedly the US and Hong Kong markets. They are widely popular among investors across the globe, and for good reason.
Benefit #1 - Strong economies
Both the US and Hong Kong have robust and stable economies, with a diverse range of industries and multinational companies.
The US has the world's largest economy and is home to many of the world's largest and most successful companies – think Facebook (Meta), Instagram, Apple, and Coca-Cola. It has a track record of resilience and has demonstrated the ability to recover from economic downturns thus offering long-term investment value with 10 times market growth in the last 10 years.
Hong Kong, on the other hand, is regarded as a major financial hub in Asia and is often seen as a gateway to investing in China. It has over 1,200 mainland Chinese company listings, such as Alibaba (Lazada), Tencent (PUBG, WeChat), Xiaomi, and Meituan (e-commerce). As such, the Hong Kong Stock Exchange provides investors access to the world's second-largest economy.
Benefit #2 - Vast investment opportunities
The US and Hong Kong stock markets host numerous companies across various sectors, including technology, finance, healthcare, consumer goods, and more.
The New York Stock Exchange (NYSE) is home to almost 2,400 listed companies and more than 7,000 traded instruments including warrants and derivatives. Apart from those, there are also many index funds and exchange-traded funds (ETFs) that allow investors to track the overall market or specific sectors, as well as a T+0 settlement cycle with no maximum price limit and circuit breakers.
As for the Hong Kong stock market, its exposure to mainland Chinese companies possess great opportunities. Various derivatives (ETF, options, etc.) increase investment opportunities, while the HKEX is a popular destination for regional companies looking to go public through IPOs which offers yet another opportunity to invest.
Benefit #3 - Liquidity and market depth
Both the HKSE and NYSE boast a high daily volume of trading activity, where investors can easily buy and sell stocks without significantly impacting the market price. Additionally, the depth of the US and HK markets - with their thousands of listed stocks and other instruments - ensures there is ample supply and demand for stocks, enhancing market efficiency.
With the largest number of listed companies in the world (6-7 times bigger than Bursa Malaysia with a total market cap of USD 49 trillion), the average daily trading volume of the US stock market is approximately 385 times larger than that of Malaysia, which means the trading volume of 1 day in the US stock market is more than 1 year of that in Malaysia!
Meanwhile, the Hong Kong Exchange (HKEX) is the 5th largest stock exchange in the world and one of the top exchanges for companies seeking an initial public offering (IPO). The average daily trading volume in the HK stock market is approximately 121 times larger than that of Malaysia, which means the trading volume of just 3 days in the Hong Kong stock market is almost 1 year from that in Malaysia.
Benefit #4 - Regulatory framework
Both markets have well-established regulatory frameworks that protect investors' rights and ensure fair trading practices.
In the US, the Securities and Exchange Commission (SEC) is responsible for regulating the stock market and ensuring that companies provide transparent, accurate and timely information to investors.
The Hong Kong Securities and Futures Commission (SFC) regulates the HK Stock Exchange to help maintain market integrity and transparency, with a strong legal framework and commitment to maintaining high standards of corporate governance.
Benefit #5 - Global influence
Investing in the US and Hong Kong markets allows investors to tap into their global influence and potentially benefit from market movements.
US-listed companies often set trends and influence global markets, while Hong Kong's strategic location and strong ties to China make it a key player in the Asian financial landscape.
Additionally, the US dollar is the world's reserve currency, making it widely accepted around the world, while the HK dollar is pegged to the US dollar. This provides investors with stability and reduces currency risk.
Benefit #6 - Diversification
Investing in international markets like the US and Hong Kong offers geographical diversification, reducing the risk associated with having a portfolio concentrated solely in one country's stock market. By spreading investments across different regions, investors can potentially mitigate the impact of localised economic or geopolitical events.
Benefit #7 - Low investment threshold
Previously, investing in international markets used to be a challenge, mainly due to accessibility issues and later on, the costs required. The development of technology has contributed to the rise of online brokerage firms and investment platforms which has drastically changed the landscape of investing. By providing access to international markets while minimising fees at the same time, investors can now trade and invest in US and Hong Kong stocks from the comfort of their homes.
How do I start trading in global markets?
To start trading in global markets, first, open a brokerage account with a platform that offers trading in international stock exchanges. This will enable you to buy and sell stocks and other securities in markets around the world. Choose a reputable firm with a history of providing global trading services and a platform that meets your needs.
Next, do some research on global markets that interest you. Study economic reports, market trends, and company earnings reports to make more informed investment decisions.
Decide on a trading strategy based on your investment goals, risk tolerance and available resources. Some traders prefer to buy and hold securities in the long term, while others prefer to trade more frequently.
Once you’ve identified markets you want to invest in, it’s time to place trades with your broker’s trading platform. Be sure to monitor your portfolio regularly and adjust your positions as needed.
But remember, investing in global markets always involves risk. Make sure to conduct thorough research, develop sound investment strategies, and manage risk appropriately.
