How easy is it to buy Asian stocks, rather than funds?
I get asked this question all the time. The good news is that it's much easier to dip a toe in Asian markets than most assume.
So this week, I'm going to go over the basics. First, I'll tell you which UK brokers you can use for straightforward markets such as Hong Kong and Singapore.
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Then secondly, because so many of you have asked, I'll take a quick look at how to open a brokerage account in Asia - this is for those investment options that you can't easily get within the UK.
The best broker for beginners
Most Asian markets are open to foreign retail investors in principle. There are two main exceptions. One is India, which restricts access to individuals with Indian ancestry (known as Non Resident Indians or NRIs). The other is Chinese A-shares listed in Shanghai and Shenzhen, which are only open to Chinese citizens. (Hong Kong-listed Chinese stocks are open to all. So are the relatively illiquid B-shares listed in Shanghai and Shenzhen.)
But just because it's possible to trade most Asian markets, doesn't mean that UK brokers will offer you the ability to do so. Low volumes, excessive local regulations, or backward market infrastructure mean that for many, it simply doesn't seem worth the effort. So if you want to invest directly in Taiwan for example, you'll have to make more effort to get a broker who can do it than you will for Hong Kong.
So what's the best place to start? I'd say TD Waterhouse. The broker is now the UK's highest volume execution-only broker, and has made a real effort to build a solid foreign dealing offering over the last few years. Judging by the emails and surveys we get here, it's by far the most popular broker with MoneyWeek readers, and it generally gets pretty good reviews (the only recurrent complaint is that the user interface on the website could be better).
It offers Australia, Hong Kong and Singapore, as well as other major markets (Belgium, Canada, France, Germany, Ireland, Italy, Netherlands, Spain and the US) for a flat fee of £12.50 per trade, exactly the same as for UK stocks. Sweden and Switzerland are also available by phone at a higher rate.
However, one point to bear in mind when looking at costs is that most brokers don't convert your money from sterling to foreign currency and back again at interbank rates. Rather, they add on their own margin, which can be substantial TD Waterhouse charges up to 1.75% per transaction, which is high.
This may not be a problem if you plan to convert funds to Australian dollars, for example, and keep them in that form even between trades. But if you're going to be switching currencies often, you will find that TD Waterhouse's costs are higher than they look at first and other brokers with better FX rates may be more competitive (such as Saxobank and Interactive Brokers, below).
The most obvious major market missing from the TD Waterhouse line-up is Japan. The firm says that it is looking at adding this and potentially other markets. But this question has been around for a few years, so I wouldn't hold my breath for immediate progress.
Isa and Sipp accounts are available. Many investors don't realise you can hold foreign shares in these tax-efficient wrappers. The rule is that you can hold foreign shares, as long as they trade on an HMRC-recognised stock exchange.
The main snag is that HMRC rules state that you can't hold foreign currency in an Isa. So capital gains and dividends have to be converted into sterling, incurring currency conversion costs, as mentioned above. (This problem does not apply to Sipps.)
Overall, TD Waterhouse is the probably the easiest option for a UK investor who wants to invest in foreign shares for the first time. And one reader recently pointed out to me that it now offers an Overseas Residents Trading Account, which will probably be one of the cheapest options for non-residents looking to buy UK shares.
I would regard TD Waterhouse as something of a minimum standard for brokers these days. If yours can't match it or offer other major advantages, it may be worth thinking about switching to somewhere more competitive.
As a final note on this provider, it's worth being aware that it has an offshore subsidiary, Internaxx, based in Luxembourg. This has higher commission rates and doesn't offer an Isa or Sipp but FX conversion is done at much more attractive rates. It may be a better option to the UK firm for some investors.
Three other execution-only options
What other choices are there? Saxo Bank is also a popular choice and gets good reviews. Its line-up is similar to TD Waterhouse's, but it also offers smaller European markets such as Austria, Denmark, Finland, Norway and Portugal. Rates vary depending on exchanges, but are typically a little more expensive than TD Waterhouse, although FX conversion is better. There's no Isa or Sipp option as far as I know, but it has more products for traders, including contracts for difference (CFDs) on markets such as Japan, Greece and Poland.
The third major option is Interactive Brokers, which is a big player in the US but surprisingly little-known in the UK (it has a UK office, so if you sign up through that you will be covered by FSA regulations). The line-up is similar to TD Waterhouse for shares, with the addition of Japan and Mexico. If you are an NRI and entitled to invest directly in India, that option has recently been added to the platform. The glaring omission is that it doesn't offer Singapore.
Fees are typically on a percentage basis rather than flat fee. But the minimum costs are among the lowest around (£6 per trade for the UK, for example) and FX conversion is perhaps the best around. Its target clients are typically traders, so there's a wide range of other products such as futures, options and CFDs. No Isa wrapper is available, but the firm recently began offering Sipp trading through a number of third-party administrators.
The other big execution-only name is Barclays Stockbrokers, which is number two behind TD Waterhouse in volume. It covers a wider range of markets than any of the others - basically Japan, Malaysia, New Zealand, South Africa and Thailand on top of the Saxo Bank line-up. So it may look like the obvious winner.
But there are two snags. First, it's expensive - I was quoted £100 a trade minimum for Asian markets last time I asked. At that price, you might as well go with an advisory broker, as we'll see below. Secondly - and to be fair, subjectively - readers generally seem to be less satisfied with the service than they are with TD Waterhouse or Saxo Bank. This is a limited sample of users and I'm keen to hear from readers who are happy with it - but at present the feedback I get makes me feel that it needs to sharpen up to stay competitive.
That largely covers it for execution-only brokers as far as I'm aware. Most others only offer a limited selection of foreign shares. A few, such as NatWest Stockbrokers, are the TD Waterhouse platform rebadged with higher fees. If you want more, you would need to move on to an advisory firm.
Advisory brokers can offer more choice - at a price
An advisory broker can give you advice on your investments, rather than just carry out your instructions. Many investors find that helpful. But the main reason I'm looking at them here is because the best advisory brokers offer more markets than the best execution-only ones, although you'll have to pay more.
Comparing these firms can be awkward, because many tend to talk of doing their best rather than having a specific list of tradable markets. That means it's sometimes hard for a non-customer to be confident of what trades they'll be able to do. So if you are signing up for an advisory broker that claims to offer foreign dealing, you should press them to be as specific as possible.
Almost all advisory firms will offer Isa and Sipp accounts. Fees are on a percentage basis, with minimums in the £50-£100 range for foreign stocks. Exact cost structures are often by negotiation.
I don't have a comprehensive list of which advisory brokers are useful for foreign dealing, because there are simply too many around. But the following are a few of the obvious names. If you think I've left out any exceptional firms, feel free to let me know.
Killik & Co gets pretty good feedback - and MoneyWeek writers regularly run availability questions past them and always get helpful and specific answers. Apart from the markets TD Waterhouse covers above, they've told me they can invest in the Nordics, Greece, Japan, Luxembourg, Malaysia, New Zealand, South Africa, Thailand and the UAE. I gather minimum commission is around £60.
Brewin Dolphin also seems well-regarded. Brokers there have told me that if a client will be doing enough business to justify it, they can offer markets such as Indonesia, the Philippines and Poland, as well as most of the ones already mentioned. The group has both an advisory division (Brewin Dolphin) and an execution-only one (Stocktrade). I've been told that minimums will be up to £65 or so for Stocktrade, depending on markets. Advisory rates are by arrangement.
Some MoneyWeek readers also use Redmayne Bentley, which uses a slightly different model to the two above. Rather than having local offices or partners, it will trade foreign shares through UK marketmakers. You will pay less competitive prices for shares through this route, but it means the firm can try to do trades in a given market on an ad-hoc basis, rather than having to have overseas arrangements already in place. I'm told they can get shares listed in rarely-offered markets such as Taiwan and Korea. You will pay for this though - I gather minimum fees in many Asian markets will be in the region of £100 or so.
Opening an overseas account
As ever, the more money you have to invest, and the larger the trade size, the better the service you'll get. A good private bank or broker which caters to high net worth individuals will be able to do most global markets - at a price, of course. If you're handling large portfolios, this is worth investigating.
But for most of us, that's not an option. So what can you do if you can't find a UK broker who offers the market that you want? You could consider opening an account with a broker abroad.
I must stress here that if you do this, you will not be covered by the FSA regulations and the Financial Services Compensation Scheme. Instead, you'll be dependent on local investor protection regulations, which may be weaker than you're used to. Obviously, you should look for an established local firm with a good reputation.
But despite the added risk, it is a step worth considering for experienced investors. Many Asian firms can offer access to most or all Asian markets from a single account, often at considerably lower rates than you would pay through a UK broker. Hong Kong and Singapore are the obvious places to do this - they have first-class financial services industries that are used to dealing with foreign clients. It's easiest to open an account in person, but most firms will allow you to do it by post if you get the necessary documents certified by a solicitor or notary in the UK.
In Hong Kong, the most popular broker with MoneyWeek readers appears to be local independent Boom. This offers Australia, Chinese B shares, Hong Kong, Indonesia, Japan, Korea, Malaysia, the Philippines, Singapore, Taiwan, Thailand and the US, all online. Commissions are on a percentage basis. Minimums vary, but Hong Kong would be HK$88 (about £7), while Taiwan - typically the most expensive market - is about NT$3500 (£75). However, like most Asian brokers, Boom sometimes makes extra charges for services such as collecting dividends and processing rights issues.
In Singapore, I'd suggest first looking at OCBC Securities, the brokerage division of the second largest local bank. It offers Australia, Canada, Chinese B shares, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, Thailand, the UK and the US, mostly online (although a few such as Taiwan and Korea need orders to be placed via your broker).
Minimums vary: Singapore is S$25 (£12) while Taiwan comes to around £45. Rates on markets such as Australia, Canada and the UK are surprisingly steep and not competitive with a broker like TD Waterhouse. The fee structure is much cleaner than average with few extra charges. Foreign investors will need to pay in a non-tradeable deposit of around S$2,000 (just under £1,000). If you feel - as I do - that it makes sense to hold some cash in Singapore dollars anyway, this won't be much of a hardship.
Funding your account requires slightly more work than with a UK broker. You can't just link it to your British bank account. To pay in money, you'll have to do an overseas transfer from your bank, or use a forex specialist like Caxton (which will often be cheaper on conversion charges).
Non-residents can also open a bank account in Singapore about as easily as opening a brokerage account. This may be useful if you want to hold cash in an Asian currency. However, the local interbank transfer system is not quite as smooth as in the UK. So if you choose one of the bank-owned stockbrokers - such as OCBC Securities, DBS Vickers or UOB Kay Hian - it probably makes sense to also open your bank account with the same group.
Cris Sholto Heaton is an investment analyst and writer who has been contributing to MoneyWeek since 2006 and was managing editor of the magazine between 2016 and 2018. He is especially interested in international investing, believing many investors still focus too much on their home markets and that it pays to take advantage of all the opportunities the world offers. He often writes about Asian equities, international income and global asset allocation.
Cris began his career in financial services consultancy at PwC and Lane Clark & Peacock, before an abrupt change of direction into oil, gas and energy at Petroleum Economist and Platts and subsequently into investment research and writing. In addition to his articles for MoneyWeek, he also works with a number of asset managers, consultancies and financial information providers.
He holds the Chartered Financial Analyst designation and the Investment Management Certificate, as well as degrees in finance and mathematics. He has also studied acting, film-making and photography, and strongly suspects that an awareness of what makes a compelling story is just as important for understanding markets as any amount of qualifications.
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