What is the value in trading foreign stocks when both the NYSE and NASDAQ offer lots and lots of US stocks? The point is that by trading foreign stocks an investor can take advantage of growth in various parts of the world at times when the markets are flat in the USA. During periods of Asian growth or volatile debt driven European markets trading foreign stocks can put the investor into stocks on the ground floor. Fundamental analysis of individual stocks and broader market trends works the same when trading foreign stocks as with stocks in US markets. Because foreign markets are commonly not as transparent as the NYSE or NASDAQ, many investors choose ADR’s. These are American Depository Receipts. Many foreign stocks trade in the USA as American Depository Receipts. Level II and III ADR’s require supervision by the SEC and, thus, have similar reporting requirement to US companies. Thus, an investor will have true numbers on which to base his estimate of the stock’s margin of safety and intrinsic stock value. Trading on the NYSE or NASDAQ these stocks can be profitably followed with technical analysis tools such as Candlestick stock charts.
Even though the Chinese economy has slowed it is still growing at more than twice the rate of the USA or EU when the two largest world economies are having a good year. This fact alone makes trading foreign stocks in China an attractive alternative to US stock investing. When an investor uses American Depository Receipts of Levels II and III he is assured of the transparency he is used to when evaluating US stocks. As with all investing and trading one needs to develop a strategy consistent with the market and individual stocks. For example, a viable strategy in China may be to look for growth stocks. In Europe an investor may decide to assess stock volatility as the Euro raises and falls as the Eurozone deals with a slow economic recovery and suddenly cooler relations with the Russian Federation over issues in Ukraine. If companies in Europe, such as Siemens, have substantial sales outside of the Euro Zone they may continue to have a strong balance sheet even if the Euro falls. Thus a trader could look for a stock in the Euro Zone with a high price to earnings ratio. He could follow via Candlestick patterns as well as quarterly reports and news about the Euro. In the periods of market inefficiency that follow changes in fundamentals, such as a debt default in Greece or Italy, he could profitably buy stock, sell stock, sell short, or profit from buying options as Candlestick signals indicate.
Clear and Accurate Information
When trading foreign stocks on a foreign stock exchange getting accurate and up to date stock information is often a problem. This is especially an issue if you do not speak the language! This is where American Depository Receipts are especially useful. The level II and III ADR’s are regulated by the Securities and Exchange Commission and provide periodic and accurate reports of their plans and financial condition. Because these foreign stocks trade as US stocks do on the NYSE or NASDAQ they trade during regular US business hours. Using Candlestick pattern formations and Candlestick trading tactics a US trader can trade European or Asian stocks and take advantage of the growth and volatility that often leads to short term investment profits.