Foreign investment is when you invest in overseas assets or buy an ownership stake in a company in another country. There are certain foreign investments you should consider adding to your portfolio. By examining the decisions made by top investors, you can develop a sound foreign investment strategy.
4 FOREIGN INVESTMENTS THAT ARE WORTH ADDING TO YOUR PORTFOLIO
- Buy Real Estate
- Invest in Stocks and Bonds
- Buy and Hold Foreign Currency
- Own a Controlling Share in Business Overseas
Devising foreign investment strategies begins by staying abreast of news about foreign affairs. Sound portfolio investment strategies are based on understanding the politics, the economy, the market, and the natural resources of various nations.
In addition to reading the news, you can do some of your research on foreign investment review websites and journals to understand international investment law and the regulations pertaining to foreign businesses.
When it comes to foreign investments, you can use either a direct method of buying the investments yourself or use a passive foreign investment company to make a purchase on your behalf.
1. Buy Real Estate
When you purchase foreign real estate, you instantly accomplish four things. First, you are able to move some of your savings overseas and build your wealth in a different economy. Next, you are creating residency, an opportunity to get a second passport, and the option to secure a second home for retirement purposes. You are also diversifying your portfolio with a tangible asset that can generate rental income. Lastly, you can now legally move some of your money abroad while maintaining your financial privacy.
Still, you have to weigh the benefits of buying foreign investment property against some foreign investment risk. You will have to fill out a substantial amount of paperwork, own an illiquid asset (it may be difficult to sell quickly without loss of value), deal with carrying costs, and cope with novel market risks. But, all things considered, the pros outweigh the cons, and this is an excellent way to diversify your portfolio.
2. Invest in Stocks and Bonds
Purchasing international stocks and bonds will help you diversify your portfolio. Besides diversifying your holdings by buying shares in an overseas stock exchange with a variety of asset classes, a foreign portfolio investment will allow you to divest into new geographical regions of the world. The reason why diversification is an important concept in investment strategy is that it provides a higher rate of return while lowering your risk. As one asset class goes down, another one is likely to rise. In the long run, your money will grow at a steady pace.
You can grow your portfolio by investing in international stocks, international stock funds, and international bonds. An international stock is a common or preferred stock issued by firms outside the U.S. An international stock fund is offered by a mutual fund company and may cover one country or several countries. An international bond is a debt issued by a foreign government or a foreign corporation.
3. Buy and Hold Foreign Currency
You should invest in a foreign currency when its price is low if you have good reason to believe that the foreign currency exchange rate will revalue at a higher price–allowing you to make a profit. For instance, when investing in the Iraqi dinar (IQD), you will make the purchase using your domicile currency, U.S. dollars. After the country was invaded by a United-States-led coalition to overthrow the government of Saddam Hussein, the value of the Iraqi dinar fell. However, with new economic reform now taking place, foreign investors expect the currency to revalue.
4. Own a Controlling Share in Business Ventures Overseas
Although you may have set up a successful business in your own country, there is a lot of homework you need to do before you can embark on foreign capital investment. Whether you are interested in sole ownership of a firm or plan to participate in a joint venture of foreign capital investment, you must research the business practices in the foreign country. Study the cultural differences, and the country’s politics and economics. It’s also always a good idea to get local guidance as well as legal guidance on what to expect when you do business overseas.
Owning a business in another country is called foreign direct investment. This is an investment based on having controlling ownership in a business in a foreign country. Controlling ownership is defined as an individual or a business entity that owns 10 percent or more of a foreign corporation. It is slightly different from a foreign portfolio investment because of the direct control of the business owners.
Foreign investors focus on countries that offer investment incentives to encourage foreign investment development. With that in mind, here is a short list of countries that top investors often consider for a direct foreign investment:
China’s foreign investment opportunities benefit investors seeking to build a business. China wants to make it easier for foreign investors to stimulate its economy, which has been weakened by the ongoing trade war with the US–as well as by low domestic demand. Many investment review websites favor a Shanghai foreign investment. One caveat made by firms with existing business ventures in China is that intellectual property rights may have to be waived as part of the foreign market investment agreements.
The trade ministry in India encourages foreign investments. India offers many incentives to set up a business in their country and foreign companies can benefit from India’s low wages and progressive business conditions.
Foreign investment opportunities in Cambodia benefit investors looking for a fast-growing Asian country. Cambodia is one of the best places for real estate and business ventures. The country’s friendly foreign investment policy encourages foreign investment companies to do business here.
Foreign investment opportunities in Vietnam benefit high-tech and energy companies. Much of the economy is export-oriented and the country is recognized for producing high-quality mobile devices, like smartphones and tablets. The business-friendly environment encourages many foreign investors from all over the world. There are also opportunities for businesses in the tourism sector and businesses in the heavy industrial manufacturing sector.
Korean foreign investment opportunities have recently increased because the South Korean government has provided corporate tax support, cash grants, and industrial site support to foreign-invested companies. However, foreign private investment firms must meet the criteria required to participate in the hi-tech sector to benefit from these incentives.
When it comes to making a foreign investment, Thailand is one of the most promising countries to start a business. After the country initiated the Investment Promotion Act to incentivize foreign investors, it attracted firms interested in research and development projects and firms interested in building manufacturing plants that developed advanced technologies. Thailand has attracted many investors from Europe, Southeast Asia, and Japan.
Australian foreign investment opportunities benefit businesses that seek low-risk market conditions. Their globally-integrated economy is based on its strong trade links with numerous other countries.
Canadian foreign investment opportunities benefit businesses interested in real estate, transportation, trade, finance, insurance, and scientific research. Canada especially wants to do business with investors and businesses that can benefit its mining sector. The friendly country has signed many investment treaties, such as a free trade agreement (FTA), plurilateral agreements, and foreign investment promotion and protection agreements (FIPA). Their goal is to facilitate both private and institutional foreign investments.
German foreign investment opportunities are in a slight decline. Although still considered an attractive place to invest because of its robust economy, Germany experienced an influx of foreign capital after the country was hard-hit by the global recession and the Eurozone crisis.
When it comes to foreign investment, Poland is a popular choice because of its geographic location in Europe and its European union membership. It’s attractive to businesses because of its huge population, low wages, skilled labor, and well-established financial and insurance services.
Romanian foreign investment opportunities benefit manufacturing, construction, and financial companies. Recent political events have discouraged investments, but the country still remains attractive to foreign investors because of its large domestic market, strong industry, and low labor costs in the Eurozone.
Spain has restored investor confidence after its economic chaos during the world financial crisis in 2007-2008. Foreign investors are rediscovering numerous opportunities in wholesale and retail trade, in the manufacturing sector, and in the financial and insurance industries.
Foreign investment opportunities in Chile have been on a steady decline for the past three years in a row due to an increase in labor costs, foreign investment disputes in the industrial sector, and degradation of the grade of copper ore.
Brazil experienced an economic boom from 2009 to 2011 but has since experienced a steady decline. In 2018, the presidential elections created uncertainty about foreign investment opportunities. Still, despite risks of complicated taxation and heavy bureaucracy, Brazil continues to attract foreign investors because of a domestic market consisting of 210 million people, a diversified economy, and easy geographical access to many other South American countries.
Russian foreign investment opportunities have fallen since 2013. Geopolitical tensions arose after their invasion of Ukraine, alienating most NATO countries. This political strain has increased due to the widespread suspicion that Russia has been interfering with democratic elections in Western nations.
Foreign investment opportunities in Egypt declined after the 2011 political revolution. Egypt used to be popular because of its skilled workforce, low labor costs, and large energy reserves. Plenty of financial liquidity due to Egypt’s close political ties with the Gulf States facilitated foreign investment loan opportunities. Previously, the country attracted a considerable amount of foreign capital through foreign trade and foreign direct investment ventures.
Developing a Foreign Investment Strategy
As the world becomes increasingly globalized, it has become much easier to invest outside your own country. Four ways to do this are to buy real estate, invest in stocks and bonds, buy and hold foreign currency, and own a controlling share in business overseas.
The primary advantage of trade and investment in another country is that it will allow you to diversify. If the economy in your domicile country ever becomes unstable, your foreign investment assets will still allow you to preserve your wealth.
Naturally, investment in another country does have some risk, so you must familiarize yourself with foreign direct investments, foreign investment in real properties, bilateral investment treaties, and many foreign investment laws. If you need to raise capital to increase your foreign investment funds, or plan to participate in joint ventures, then you also need to familiarize yourself with foreign investment banks and understand international political and economic conditions.