Online and phone stock trading brings within reach the 97 per cent of the world's equities that are not listed on Australia's stock exchanges, writes Penny Pryor.
Online and phone stock trading brings within reach the 97 per cent of the world's equities that are not listed on Australia's stock exchanges, writes Penny Pryor. As the Australian equity market remains stuck in a rut, it may be time to examine the opportunities offshore.If you're a savvy share investor you will be doing this already. After all, the Australian sharemarket accounts for less than 3 per cent of total global market capitalisation. That means you are missing out on 97 per cent of possible sharemarket action by avoiding it.In the past, Australian investors got their international fix via managed funds, but with the increase in popularity and use of online or telephone brokers, you can now buy shares in international markets directly.WHYDiversification is paramount for any investor, which is the main reason you should be looking at some kind of international exposure.Online brokers that offer international share offerings report that while they still account for a relatively small amount of total volume, they are growing rapidly."It's our fastest growing product," the head of retail at E*Trade, Matthew Loughnan, says. "Clients are looking for that opportunity. When clients are looking to diversify, they look offshore."Westpac offers a comprehensive package online for US shares and the other markets in our table via phone on its Global Markets facility.Head of broking at Westpac Institutional Bank, James Staltari, says it probably accounts for less than 5 per cent of all trades."They meet the needs of a small customer segment," he says. "Volumes are much less than 5 per cent but nonetheless it's an important customer segment."Westpac launched the product in response to growing demand from customers and believes its US offering, which includes a comprehensive package of data, interactive charts and research, is one of the best on the market."We provide customers the ability to access over 30 international markets," Staltari says."The key emphasis is on leading global brands - Apple, Microsoft industries that are less mature or don't exist in the Australian market."PERFORMANCEDuring the past financial year the ASX/S&P 200 Index has dropped by 11.14 per cent.Compare that with a 3.75 per cent increase in the Dow Jones Industrial Average and a 5.82 per cent rise in the Nasdaq.They may have fallen further during the global financial crisis, but some global markets are starting to come off those bottoms as economic conditions very gradually improve.A stronger currency at home also makes global shares cheaper."We find there is growing interest in international markets - obviously that has been brought along by the strength of the Australian dollar," Staltari says.Loughnan agrees. Another factor is the flight to quality as investors seek out big global names in which they have confidence.The top five traded companies at E*Trade last year were Apple, Berkshire Hathaway, Bank of America, Facebook and Google.Loughnan says that interest in Facebook peaked just after the float and, after a lull, came back as the price recovered.Interestingly, Staltari says he didn't see much interest in Facebook at all. "Typically you see them in the iconic brands - Google, Apple. We haven't seen a mad rush of people rushing into the stock [Facebook]," he says.Global fund managers are also starting to boost their exposures to shares and North America is high on the list.According to the HSBC fund managers survey for the third quarter, 70 per cent of global fund managers are holding an overweight position on North American equities, which is the highest overweight equity position of any global market. It had increased from 67 per cent in the second quarter. Only 40 per cent of fund managers were overweight Asia Pacific ex Japan.COST ANDFUNCTIONALITYIt's not as cheap as buying shares locally but if you want to add Facebook, Google or Microsoft to your portfolio, you can now do it for less than $100 a trade with most of the brokers in our table.E*Trade offers international trades in all the markets in the table at a cost of $64.90 for trades between $2000 and $10,000 and 0.65 per cent of the value of the trade for amounts more than that.Interactive Brokers offers international trades for a cost of 0.1 per cent of trade value for all in the table, except those listed on the London exchange, for which it has a flat rate of #6 ($9) up to a trade size of #50,000. Anything larger than that will carry a cost of 0.05 per cent of the additional amount (plus the #6).Saxo Bank also offers trades in the US market at US2? per trade, with a minimum trade size of $US15.E*Trade offer a platform that allows you to access both global and Australian shares together."Through our platform you can do it all online, it's all on the same way you buy Australian stocks," Loughnan says. "You go into the site, you pick which exchange, you can do a quick quote."Westpac has just released its second-generation mobile platform, and while it does not yet include the capability to trade international shares, if demand keeps growing, the third generation probably will.Already more than a third of trades on online brokers in Australia are conducted via mobile phone and some are forecasting that to grow to as much as 50 per cent by the end of this year.It costs $US57.95 or 0.65 per cent of the trade size, whichever is greater, to trade on the major American markets with Westpac.TAXTo ensure you don't have the full 30 per cent withholding tax deducted from your share dividends in the US, you need to fill out a W-8 BEN form, which certifies you are not a US resident. As Australia and the US have a tax treaty, the rate is reduced to 15 per cent. You then have to reconcile the income on your income tax form at home.Requirements differ depending on the market but if you are trading in other global markets, you may need to fill out similar forms. Or, if the custodian is US-based, the W-8 BEN may cover you.