In our article, Three Good Offshore Investment Ideas, we suggest that one opportunity for offshore investment is to find companies that work offshore. Another viable option is investing in foreign stocks. The easiest way to do this is with American Depository Receipts, ADR’s. How to invest in stocks from offshore companies is to invest in stocks that are listed on the New York Stock Exchange as ADR’s. An ADR is a negotiable security of a non-US based company which trades in United States markets. Such stocks are denominated in US dollars and, when they pay dividends, pay in US dollars. When investing in foreign stocks via the ADR route an investor avoids the risk of dealing with a foreign stock exchange and dealing in a foreign currency. An ADR is issued by a US bank after shares of the original stock are deposited in a custodial bank in the nation of origin. This is typically done by a broker in the home country of the stock. The price of an ADR follows the value of the stock in the nation of origin as translated into US dollars. American Depository Receipts are an excellent vehicle for investing in foreign stocks and not needing to speak the language of the country in which the original stock is issued.
Picking a Foreign Stock
There are two general routes when investing in foreign stocks. One is to look for a market that is likely to grow. If you believe that you can make money by investing in Latin America you may look for stocks issued in Brazil or Mexico. A viable choice might be oil stocks, especially in Brazil as recent oil finds bring its reserves to the level of Saudi Arabia. Using the theory that a rising tide raises all ships, you believe that the more important factor is the strength of the emerging market more so that the strength of the individual stock. The other route is to look for individual companies that are strong in their nation of origin and, perhaps, are exporters of goods and services to the world. In this case, issues such as a fall in currency value in a nation may be helpful both in making a stock cheaper to buy and in making the underlying company more competitive in world markets. A company like Siemens comes to mind if investing in foreign stocks in Europe is something that interests you. At times when the Euro is weaker the stock may be a bargain. At the same times Siemens’ products and services may sell better across the globe because they will be more price competitive.
Tracking Foreign Stocks
A level 3 ADR is the most secure for an investor. These companies must adhere to the strictest set of rules when offering stock in the USA. They are issuing stock to raise capital in the USA and must adhere to SEC rules consistent when what US based stocks must do. Fundamental analysis of level 3 ADR’s is easier because of the English language materials which the company must furnish investors.